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We investigate the impact of prior alliance relationships on subsequent mergers between partner firms. We argue that an acquirer’s prior alliance experience with the target reduces information asymmetry, which helps improve acquisition performance. Alternatively, agency problems arising from familiarity may lead to inefficient decision making. Examining mergers between 1986 and 2014, we find evidence that prior alliance collaboration is positively associated with the acquirer’s long-term profitability and growth. This positive effect is more pronounced when target-specific learning and experience are more crucial to merger success, such as targets in knowledge-intensive or organizational-capital-intensive industries as well as cross-industry mergers. However, we cannot formally rule out the possibility that our results are partly driven by the small size of our sample.
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Using a significant auditing event-the going concern audit opinion-we investigate the market’s forecasting ability and the importance of firm fundamentals in predicting the going concern event. First, we find that the equity market signals the upcoming going concern announcement as early as 30 days in advance. Specifically, during the window of [-30, -1] leading up to the announcement, the excess returns to going concern firms are 9.98% worse than the matched distressed firms. Moreover, short sellers, a group of sophisticated investors, significantly increase their shorting activities during days before the release of the going concern opinions. Furthermore, we find that firm fundamentals, which are observable to the market, are significantly predictive to the issuances of going concern. These variables include a firm’s operating performance (return on assets and operating cash flows), equity market liquidity, stock momentum, and filing delay. Overall, our evidence supports the perception that the market can forecast the going concern opinion release and points out its possible channel as well.
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In this study, we examine the intra-industry effect of proxy contests. Proxy contests convey the information of common industrial risks or expected competitive relationship change. We find significant negative abnormal returns in the group of competitors of target firms with negative abnormal returns, and such negative abnormal returns become larger for similar-size competitors. In contrast, there are no significant abnormal returns for competitors of target firms with positive abnormal returns. These findings are consistent with the information-based theory but not the competitive theory. © 2019, Academy of Economics and Finance.
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We investigate if CEO characteristics determine the choice of Political Action Committee (PAC) contributions by firms and if such participation leads to better firm performance. Using a unique, hand-collected database, we also focus on the identity of the politicians receiving PAC contributions to examine the impact of the value-relevance of such contributions. Examining data on corporate contributions made to candidates seeking federal office during the 2002, 2004, and 2006 election cycles, we find that CEO dominance and interest alignment influence strategic choices of firms with regards to establishing PACs. Our analysis of value-relevant contributions shows that firms prefer to donate to politicians representing the state of a firm's headquarters, validating the truth to the adage that all politics is local. However, these targeted political contributions do not have a discernible impact on firm performance.
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The Sarbanes Oxley Act of 2002 (SOX) is documented to curb executive risk-taking and firm risk. Utilizing SOX as an exogenous shock on firm risk, we find that proxy fight threats are positively related to a firm’s total risk and idiosyncratic risk. Specifically, although firm risk generally decreases post-SOX, high proxy fight threats mitigate this change in firm risk. We also find that although firms adopt more conservative policies such as decreasing their leverage and payout post-SOX, these changes are mitigated by proxy fight threats. In sum, our findings indicate that proxy fights act as an external disciplinary mechanism, encourage executive risk-taking, and increase firm risk.
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I employ a classification of headlines from newspapers and wire services to examine whether stale macroeconomic news affects stock prices. Unlike with individual stocks, the cost of obtaining information about major economic releases is relatively low. Thus, stock prices should adjust to economic news announcements prior to their coverage in newspapers. I find statistically and economically significant relationship between stale news stories on unemployment and next week's S&P 500 returns. This effect is then completely reversed during the following week. These findings show that investors are affected by salient information and support the hypothesis that investors overreact to stale macroeconomic news reported in newspapers. (C) 2017 Elsevier B.V. All rights reserved.
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This article extends the literature on the financial performance of real estate investment trusts (REITs) by examining whether U.S. REIT returns are impacted by global REITs and other real estate subsectors, such as the U.S. Real Estate Index (USRE) and the U.S. Mortgage Finance Index (USMF). The authors also explore the issue of volatility transmission and the asymmetric effect of volatility spillover on U.S. REIT returns from innovations originating in other real estate subsectors and Global REITs. Results suggest that U.S. REITs are impacted by USRE and USMF returns. There is also evidence of volatility spillover from key real estate constituents-that is, USRE and USFM returns and global REIT markets. These results can be attributed to the changing dynamics of the real estate sector and the gradual integration of the global real estate sector as an asset class. These findings have strong implications for constructing global portfolios including REITs.
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