In his groundbreaking work “Uncertainty, Evolution, and Economic Theory,” Armen Alchian (1950) suggests that survival is the real test of a firm's success. In this paper, I apply the survival test to the use of dual class share structures in the United States. Beginning with its original implementation by the International Silver Company in 1898 to the prevalence of dual class initial public offerings in 2013, I review the evolution and continued sustainability of the dual class structure in the United States. I contrast the structure with the failed use of tracking stocks and illustrate the structure's continued resilience alongside “competitive” anti-takeover devices such as poison pills, staggered boards, and supermajority voting requirements. Despite the external challenges from legislative bodies, shareholder rights groups, and institutional investors, the dual class structure has survived as an alternative means to raise capital for founders and/or controlling stockholders.

Performance share plans are an increasingly important component of executive compensation. They are equity-based, long-term incentive plans where the number of shares to be awarded is a quasi-linear function of a performance result over a fixed time period. We derive closed-form formulas for the value of a performance share plan when the performance measure is: (1) a non-traded measure following an Arithmetic Brownian Motion (e.g., earnings per share), (2) a non-traded measure following a Geometric Brownian Motion (e.g., revenue), or (3) a rank-order tournament of traded asset returns that are following Arithmetic Brownian Motions (e.g., percentile of ranked stock returns). Then we empirically test our valuation formulas. We find that our valuation formulas are more accurate for performance share plans based on earnings per share when forecasting using analyst consensus prior to the grant date. We also find that the efficiency of our valuation model greatly depends on the method used to forecast future firm performance. The policy implication is that FASB should consider requiring that grant date fair value be estimated using valuation formulas such as ours.

We examine the pricing of restrictive covenants on bond issues before and after the financial crisis. The existing literature in this area uses data from the pre-crisis period. While the results of our analysis using pre-crisis data are entirely consistent with existing literature, there are dramatic differences in the value of restrictive covenants between the two periods. Further, the differences between the coefficients on the control variables document and elucidate the very different bond market dynamics before and after the crisis. Before the financial crisis, we find a statistically significant cost reduction of around 50 basis points for the inclusion of negative pledges and restrictions on sale-and-leaseback activity. In the post-financial crisis period, however, the benefit of these types of covenants evaporates, becoming statistically insignificant. The benefits, for investment grade firms, of restrictions on investment activities survives the financial crisis; the price effect in the pre-crisis period is a statistically significant 60 to 72 basis point (depending on model) reduction in yields, while in the post-crisis period it is a statistically significant 51 to 55 basis point reduction in yields. For non-investment grade firms, we find in the pre-crisis period that the price effect of restrictions on payouts and additional debt are insignificant. After the financial crisis, however, these restrictions lead to a statistically significant 141 to 150 basis point reduction in yields.

Given the frequency and value implications of post-IPO merger and acquisition activity, we investigate empirically whether investors can utilize information based on IPO deal structure to predict merger and acquisition activity among newly public firms. Consistent with the hypothesis that some firms conduct IPOs to facilitate future M&A activity, we find that aspects of IPO deal structure predict whether a newly public firm subsequently becomes a bidder or target. These characteristics include underwriter quality, promotional activity, pricing, proceeds, ownership structure, and issuance activity suggestive of market timing. Investors appear to rely on these observable aspects of a firm's going public process to anticipate the implications of M&A activity for security valuation. Specifically, when newly public firms with IPO deal structures predictive of acquisition activity announce an acquisition their stock returns are indistinguishable from zero. In contrast, abnormal returns to acquisition announcements by unlikely or surprise bidders are positive on average. These results suggest that the going public process has important implications for future M&A activity and valuation.