GASPAR Jose Miguel

This doctoral dissertation consists of three essays on several topics in the field of empirical corporate finance. Essay 1 studies the informational advantage of independent directors with industry expertise versus independent directors without such expertise. To do so, I look at the profits from so-called "insider" trades made by independent directors. I find that independent directors with industry expertise earn significantly higher profits than independent directors without such expertise. Moreover, an increase in the proportion of independent directors with relevant industry expertise on the board is associated with better alliance performance, greater likelihood of successful M&A transactions, and less sensitivity of the firm's investments to market prices. The results as a whole suggest that industry expert directors have superior knowledge of the firm and may improve the effectiveness of the board in performing its oversight and advisory functions. Essay 2 studies the detrimental effect of short selling activity on customer-supplier relationships. We show that the amount of short selling of a supplier's stock is positively associated with a higher probability that a major customer of the supplier will terminate the business relationship between the two. Such an interruption can be partially prevented by the presence of "block" holders of stock in the supplier's firm, especially if these holders have a long-term orientation. Our results are consistent with the hypothesis that short sellers can disrupt a firm's relationship with commercial counterparties through the so-called "feedback" effect, that is, the fact that market prices affect the firm's decisions. On the other hand, the presence of "blockholders" is an effective mechanism to counteract this disruption. Essay 3 examines possible reasons for the increasing rate of "bundled" takeover announcements, in which the acquirer's management announces an impending acquisition on the same day that the acquirer reports its quarterly results to the market. This practice seems odd given that bundled deals have significantly lower acquirer announcement yields, regardless of the target's status. Our results point to the "strategic information disclosure" hypothesis as the most likely reason why firms choose to bundle acquisition and earnings announcements. These acquirers, faced with weak earnings, led by recently appointed CEOs, and in a situation of analyst challenge and uncertainty, use bundled announcements as a tool to influence the market's reception of their performance.

Recent years have witnessed a lack of dynamism in the stock markets, which has led a growing number of investors to turn to private markets, particularly private equity. This manuscript addresses issues that characterize the changes in private equity today: a search for relative liquidity, a quest for higher returns in new markets, and the stability of human resources, which remain an important vector of communication when raising funds from investors.The first essay of this thesis examines the impact of the IPO of private equity vehicles on their performance and shows that this search for liquidity leads to a significant decrease in realized performance. The second essay discusses the performance of private equity in emerging markets and shows that the success of these investments is related to the geographical distance and cultural proximity between private equity firms and the companies financed.Finally, the last essay of this thesis examines the importance of human capital for private equity firms and shows that managerial mobility deteriorates realized performance.

This doctoral work studies the "feedback" effect of financial information related to stock prices on managers' decisions. Specifically, I study whether and how managers actually learn new information from stock prices to guide their corporate decisions. My dissertation consists of three essays, each addressing a different aspect of this same topic. The first essay studies the link between the informational efficiency of the stock market and the level of real economic efficiency of the firm. In the first essay, I find that when stock prices aggregate a greater amount of useful information, managers' decisions about firms should be even more optimally efficient. The second essay studies whether managers seek to learn the information used by short sellers. Is studying stock prices in the presence of short sellers useful for firm decisions? In the second essay, I overcome empirical difficulties by exploiting a unique institutional feature in the Hong Kong stock market. I find that managers of "non-shortable" firms can take advantage of short sellers' information about industry economic conditions through the stock prices of other "shortable" firms in the same industry and use it in their corporate decisions. The third essay studies the actual effects of long option trading. In the third essay, I find that the introduction of a specific class of long-term options stimulates the production of long-term private information and thus leads to an increase in the informativeness of prices on the long-term fundamentals of firms. As a result, managers can extract more information from the stock price to guide their long-term investment decisions.

The first chapter shows that the returns of funds invested in illiquid stocks ("illiquid funds") are better than those of funds invested in liquid stocks. This difference stems from the ability of illiquid funds to select stocks. Stocks held by illiquid funds perform better than portfolios that have the same characteristics. Liquid funds report benchmarks against which their returns are greater. A portfolio of stocks held by illiquid funds performs better than a portfolio of stocks held by liquid funds. The second chapter documents a predictability of returns. In this chapter, opportunity periods are periods when the returns of stocks that are regularly analyzed by analysts (the tracked stocks) deviate from those of stocks that are not tracked (the neglected stocks). Subsequent returns on easily valued stocks are greater when opportunities were great, compared to periods when opportunities were limited. This behavior is consistent with a model where investors demand a premium to bear the risk of adverse selection. The third chapter explores when investment funds change their investment style (style is defined as risk exposure, taking into account the usual risk factors). Funds do not take more risk when it would be more profitable to do so. After having had bad returns, funds move towards the style of similar funds, but which have had good returns. The style of young funds deviates from the style of older funds. New fund managers deviate from the style of funds with old managers. When a fund takes more risk on one side, it does not try to systematically address the other sides of the risk.

Because of biases that corporate executives suffer when making acquisition decisions, M&A has a long history of not generating positive returns for buyers. Through three trials, our research explores the impact of recent changes in the economic and social environment, including 1) the deployment of IFRS, 2) the development of board committees, and 3) the publication of the NRE Law, on the M&A performance of acquirers in France. Analyzing the abnormal returns generated at the time an acquisition is made, we find that M&A performance has not improved, mainly because the main changes that have occurred have left significant discretion to management but also because the adoption of new market practices have been incorporated by investors in their evaluation of acquisition results. We also find that CSR strategies have a negative impact. However, we find that the establishment of board committees and the implementation of the NRE Act, which may have led to increased transparency of information, have had a positive impact.

This thesis consists of three separate chapters. The first chapter examines the causal relationship between the supply of syndicated loans by banks and campaign contributions by non-financial firms in the United States during the 2007-2008 financial crisis. The results indicate that a 10% decrease in the loan supply to a given firm by its pre-crisis lenders during the first crisis period leads to a 9% increase in campaign contributions by that firm in 2008. Moreover, the level of campaign contributions by firms in the past is positively associated with favorable lending terms in the future. The results support the idea that campaign contributions are an investment in political capital rather than simply a form of consumer good. The second chapter identifies the effect of banks' pre-entry industrial exposure on output growth in manufacturing sectors. The results indicate that the greater the difference in specialization in a sector between two states, the greater the impact of banking integration on the growth of that sector in the less specialized state. The final chapter examines whether banking integration in multiple regions has an impact on the market for control of firms between them. The results indicate that there are more mergers, acquisitions, and divestitures in state pairs whose banking systems have experienced greater integration, compared with state pairs without such integration. The results in the last two chapters indicate a banking channel that shapes the state industrial landscape.

The fastest growing segment of private equity (PE) deals is secondary buyouts (SBOs)—sales from one PE fund to another. Using a comprehensive sample of leveraged buyouts, we investigate whether SBOs are value-maximizing, or reflect opportunistic behavior. To proxy for adverse incentives, we develop buy and sell pressure indexes based on how close PE funds are to the end of their investment period or lifetime, their unused capital, reputation, deal activity, and fundraising frequency. We report that funds under pressure engage more in SBOs. Pressured buyers pay higher multiples, use less leverage, and syndicate less suggesting that their motive is to spend equity. Pressured sellers exit at lower multiples and have shorter holding periods. When pressured counterparties meet, deal multiples depend on differential bargaining power. Moreover, funds that invested under pressure underperform.

During the last decade an increasing fraction of PE exits have been secondary deals, in which one PE fund sells their portfolio company to another PE fund. On a comprehensive sample of 9,771 LBO deals in the U.S. and in 12 European countries from 1980 to 2010, this paper investigates to what extent secondary deals are outcomes of opportunistic behavior of the sponsor or adverse incentives of the PE contract. We report evidence that a secondary deal is significantly more likely if either the buyer fund is under pressure to invest or if the seller fund is under pressure to exit. We measure deal pressure by the closeness to the end of the lifecycle/investment period of a fund, by its degree of inactivity or unused funds and by its lack of reputation. Deal pressure also has an impact on deal valuation: Buyers under pressure pay relatively more for the secondary deals that they enter into, while sellers under pressure are willing to accept lower prices for their portfolio firms in secondary buyouts. The latter effect in dominated by the former suggesting that sellers have more bargaining power in secondary transactions.

During the last decade an increasing fraction of PE exits have been secondary deals, in which one PE fund sells their portfolio company to another PE fund. On a comprehensive sample of 9,771 LBO deals in the U.S. and in 12 European countries from 1980 to 2010, this paper investigates to what extent secondary deals are outcomes of opportunistic behavior of the sponsor or adverse incentives of the PE contract. We report evidence that a secondary deal is significantly more likely if either the buyer fund is under pressure to invest or if the seller fund is under pressure to exit. We measure deal pressure by the closeness to the end of the lifecycle/investment period of a fund, by its degree of inactivity or unused funds and by its lack of reputation. Deal pressure also has an impact on deal valuation: Buyers under pressure pay relatively more for the secondary deals that they enter into, while sellers under pressure are willing to accept lower prices for their portfolio firms in secondary buyouts. The latter effect in dominated by the former suggesting that sellers have more bargaining power in secondary transactions.

During the last decade an increasing fraction of PE exits have been secondary deals, in which one PE fund sells their portfolio company to another PE fund. On a comprehensive sample of 9,771 LBO deals in the U.S. and in 12 European countries from 1980 to 2010, this paper investigates to what extent secondary deals are outcomes of opportunistic behavior of the sponsor or adverse incentives of the PE contract. We report evidence that a secondary deal is significantly more likely if either the buyer fund is under pressure to invest or if the seller fund is under pressure to exit. We measure deal pressure by the closeness to the end of the lifecycle/investment period of a fund, by its degree of inactivity or unused funds and by its lack of reputation. Deal pressure also has an impact on deal valuation: Buyers under pressure pay relatively more for the secondary deals that they enter into, while sellers under pressure are willing to accept lower prices for their portfolio firms in secondary buyouts. The latter effect in dominated by the former suggesting that sellers have more bargaining power in secondary transactions.