We find evidence of passive and active roles for arbitrageurs in the acquisition process. Using a simultaneous-equation framework to recognize endogeneity, we analyze 608 acquisition bids over the 1992–1999 period. Our results indicate that the change in arbitrage holdings is greater in successful offers. However, changes in arbitrage holdings are also related to the probability of success, bid premia, and arbitrage returns. In addition, the change in arbitrage holdings is positively associated with both revision returns and the occurrence of subsequent bids. Overall, we find that merger arbitrageurs play an important role in the market for corporate control.

For a sample of successful tender offers, we find that the shareholders of high q bidders gain significantly more than the shareholders of low q bidders. In general, the shareholders of low q targets benefit more from takeovers than the shareholders of high q targets. Typical bidders have persistently low q ratios prior to the acquisition announcement while target q ratios decline significantly over the five years before the tender offer. Our results are consistent with the view that takeovers of poorly managed targets by well-managed bidders have higher bidder, target, and total gains.

Our work provides refined tests of the source of merger gains in a neglected industry: utilities. Utilities offer fertile ground for analysis of traditional theories: synergy, collusion, hubris, and anticipation. Utility mergers create wealth for the combined firm, consistent with both the synergy and collusion hypotheses. To distinguish between these hypotheses, we study rival stock returns across dimensions related to collusion: deregulation, geography, and horizontal and withdrawn deals. We also find that the impact of mergers on consumer prices is consistent with synergy rather than collusion. Analysis of industry rivals that become targets also rejects collusion and is consistent with anticipation.

Congress and activists recently proposed giving shareholders a say (vote) on executive pay. We find that when the House passed the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal chief executive officer (CEO) compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure. However, activist-sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance. The market reacts negatively to labor-sponsored proposal announcements and positively when these proposals are defeated. Our findings suggest that say-on-pay creates value for companies with inefficient compensation but can destroy value for others.

This study investigates the performance of firms with extremely high levels of market to sales value (“concept stocks”). To many observers, these stocks appear overvalued. However, proponents argue that because of their unique characteristics, traditional pricing models fail to value these firms correctly. Ex post, the debate can be resolved through an analysis of the long-term performance of concept stocks. En route to testing the implied overpricing hypothesis we document several important findings. First, the identity and characteristics of concept stocks have changed markedly over time. Although the obvious recent examples are internet and biotech stocks, concept stocks vary widely by industry over the past four decades. The industries containing the most popular concept stocks evolve from oil and gas extraction in the 1960s and 1970s, to computer and office equipment in the 1980s, and to computer-related services in the 1990s. Second, although concept stocks tend to be young, small, growth stocks in the 1990s, they exhibit a wide range of characteristics throughout the sample period. Third, the relative pricing of concept stocks (compared to either a control sample or the entire population) has changed dramatically over time. The average concept stock sold for approximately three times sales in the late 1960s and 1970s, five times sales in the 1980s and nearly 17 times sales in the 1990s. Finally, we find evidence supporting the overpricing hypothesis. Concept stocks under-perform significantly in the long run. This under-performance is more severe for Nasdaq firms and in the most recent two decades. The results are separate from glamour, IPO, industry, or contrarian effects and remain after an extensive sensitivity analysis.

We examine the importance of dividend-capture trading in NASDAQ stocks by testing for cross-sectional relations between ex-day abnormal returns and bid-ask spreads. Throughout, we find that ex-day returns and spreads are positively related. The relation increases across dividend-yield quintiles and is strongest in high-yield stocks. The relation does not appear in a sample of non-ex-dividend days. These findings indicate that dividend-capture trading affects the ex-day returns of at least some, particularly high-yield, NASDAQ stocks, and that dividend-capture trading is important for understanding ex-dividend-day returns.

A dividend tax penalty creates profitable trading opportunities for short-term traders with sufficiently low transaction costs. In stocks with ex-dividend day returns affected by short-term trading, ex-day returns are positively correlated with transaction costs. Data from 1964–1985 indicate that short-term traders are the marginal investors in high-yield stocks, primarily since the introduction of negotiated commissions on the NYSE. Short-term trading is not evident in low-yield stocks, nor does it appear prevalent before negotiated commissions.

Using approximately 10,000 firms jointly covered by Compustat and CRSP from 1974–1993, we find substantial differences in the SIC codes designated by the two databases. More than 36 percent of the classifications disagree at the two-digit level and nearly 80 percent disagree at the four-digit level. We examine the impact of these differences upon financial research in several ways. First, we show that the classification of utilities, financial firms, and conglomerate acquisitions are affected by the choice of CRSP vs. Compustat SIC codes. Second, we show that industry classification matters in financial research by illustrating that size- and industry-matched comparisons are more powerful than pure size matches. Third, we test the specification and power of Compustat vs. CRSP classifications by simulating a typical financial experiment in which sample firms are matched to control firms by industry. We find that: i) Compustat matched samples are more powerful than CRSP matched samples in detecting abnormal performance; ii) nonparametric tests outperform parametric tests; and iii) four-digit SIC code matches are more powerful than two-digit SIC code matches. These results are robust to the inclusion or exclusion of extreme values, and hold for both NYSE/AMEX and Nasdaq firms.

Using a large sample of director elections, we document that shareholder votes are significantly related to firm performance, governance, director performance, and voting mechanisms. However, most variables, except meeting attendance and ISS recommendations, have little economic impact on shareholder votes—even poorly performing directors and firms typically receive over 90% of votes cast. Nevertheless, fewer votes lead to lower “abnormal” CEO compensation and a higher probability of removing poison pills, classified boards, and CEOs. Meanwhile, director votes have little impact on election outcomes, firm performance, or director reputation. These results provide important benchmarks for the current debate on election reforms.

Using 9,801 director appointments during 2003–2014, we document the dramatic impact of connections. Sixty-nine percent of new directors have professional ties to incumbent boards, a group representing 13% of all potential candidates. Consistent with facilitating coordination and reducing search costs, connections help boards bring in gender diversity, new skills, and new industry background. More complex firms and firms in more competitive environments tend to appoint connected directors and experience better market reactions and higher shareholder votes. Connections to incumbent CEOs, however, result in lower announcement returns and shareholder votes. We use death (merger)-induced network loss (gain) as instruments.