We investigate the takeover strategies of high default risk acquirers and their value impact. We find that these bidders select bigger, less profitable and unrelated targets, pursue transactions during recessions, and pay with shares by offering target shareholders high premiums. Their long-term buy-and-hold returns are extremely negative, and reflect fundamentally their substantial drop in profitability combined with high leverage. We show that the well-established long-run underperformance of acquiring firms is largely driven by this sub-set of acquirers. The results are similar when we use alternative measures of default risk and performance, and a global sample of non-US bidders.

This paper proposes a new semi‐parametric identification and estimation approach to multinomial choice models in a panel data setting with individual fixed effects. Our approach is based on cyclic monotonicity, which is a defining convex‐analytic feature of the random utility framework underlying multinomial choice models. From the cyclic monotonicity property, we derive identifying inequalities without requiring any shape restrictions for the distribution of the random utility shocks. These inequalities point identify model parameters under straightforward assumptions on the covariates. We propose a consistent estimator based on these inequalities.

This paper studies how hedge fund activism impacts corporate innovation. Firms targeted by activists improve their innovation efficiency over the five-year period following hedge fund intervention. Despite a tightening in research and development (R&D) expenditures, target firms increase innovation output, as measured by both patent counts and citations, with stronger effects among firms with more diversified innovation portfolios. Reallocation of innovative resources, redeployment of human capital, and change to board-level expertise all contribute to improve target firms’ innovation. Additional tests help isolate the effect of intervention from alternative explanations, including mean reversion, sample attrition, voluntary reforms, or activist stock-picking.

We find that fund managers who began their careers during recessions produce superior returns. This superior performance is not unconditional, as they exhibit better market timing than their non-recession counterparts in recessions, but do not demonstrate better stock picking in booms. Exploring managers' portfolio choices across years, we find that recession managers tilt their investments towards defensive, rather than cyclical, industries during and before recession periods. Overall, our findings support the argument that the economic conditions under which an individual initially entered the labour market exert a long-term impact on her career outcomes and decision-making.

Does a decrease in shareholder litigation enhance managers’ monitoring efforts by ensuring adequate firm risk management? We explore how state universal demand (UD) laws (which limit shareholder litigation as a mechanism to discipline managers), affect bank holding companies’ (BHCs) risk. Using a difference-in-differences analysis, we show that BHCs reduce their tail risk exposures after the implementation of UD laws, which is achieved by improving loan asset quality. Indeed, BHCs appear to apply stricter contract terms for syndicate loans to risky and opaque borrowers. We also show that UD law implementation leads to changes in BHC board composition by increasing the proportion of outside directors, the number of independent directors in audit committees and the number of independent directors with financial expertise.

We study whether borrowers' opaque practices, such as tax aggressiveness, are affected by their lenders' engagement in mergers and acquisitions (M&As). Our findings suggest that borrowers' tax aggressiveness is negatively associated with bank mergers as banks increasingly rely on hard information in monitoring and lending practices following mergers. This relationship is more pronounced for borrowers that are more opaque in their information environments and have a greater need for credit, and when banks that have a greater intention to monitor borrowers and rely more on soft-information-based monitoring prior to the mergers. Our study contributes to the growing literature on whether and how bank consolidations affect borrowers' decision making.

We find that managers receive more risk-taking incentives in their compensation packages once their firms are referenced by credit default swap (CDS) trading, particularly when institutional ownership is high and when firms are in financial distress. These findings provide suggestive evidence that boards offer pay packages that encourage greater risk taking to take advantage of the reduced creditor monitoring after CDS introduction. Further, we show that the onset of CDS trading attenuates the effect of vega on leverage, consistent with the threat of exacting creditors restraining managerial risk appetite.

This paper provides new evidence that correlated abnormal compensation of CEOs and directors is symptomatic of agency problems associated with cronyism. We find that director abnormal compensation has a negative impact on the likelihood of CEO turnover and reduces the sensitivity of CEO turnover to poor stock performance. However, for firms with greater institutional ownership the adverse effects of director abnormal compensation are mitigated, and the negative impact of abnormal compensation on firm performance is reduced. These findings suggest that correlated abnormal compensation of CEOs and directors is likely associated with agency problems.