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- Corporate Governance and Mergers and Acquisitions (9)
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Articles 1 - 28 of 28
Full-Text Articles in Business
Governance And Corporate Control: Compliments Or Substitutes, Atreya Chakraborty
Governance And Corporate Control: Compliments Or Substitutes, Atreya Chakraborty
Atreya Chakraborty
In this paper we test for the motives for adopting golden parachutes and Anti Takeover Amendments (ATAs). Firms that exhibited financial characteristics that were associated with a greater probability of hostile raids were also more likely to adopt golden parachutes or ATAs. We also find evidence to support the hypothesis that the adoption of golden parachutes and poison pills may in fact be complement each other.
A Metric And Topological Analysis Of Determinism In The Crude Oil Spot Market, Atreya Chakraborty
A Metric And Topological Analysis Of Determinism In The Crude Oil Spot Market, Atreya Chakraborty
Atreya Chakraborty
We test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude …
Credit Gap In Small Businesses: Some New Evidence, Atreya Chakraborty
Credit Gap In Small Businesses: Some New Evidence, Atreya Chakraborty
Atreya Chakraborty
What is the magnitude of credit constraint affecting small businesses? This paper provides estimate of the credit gap – defined as the difference between the desired and actual levels of debt for credit constrained small businesses. The estimated credit gap is approximately 20 percent, i.e., credit constrained small business on the average would desire 20 percent more debt. This credit gap varies considerably across industries, with manufacturing firms facing a significantly larger gap than firms in the wholesale or service industries.
The Effects Of Uncertainty And Corporate Governance On Firms’ Demand For Liquidity, Atreya Chakraborty
The Effects Of Uncertainty And Corporate Governance On Firms’ Demand For Liquidity, Atreya Chakraborty
Atreya Chakraborty
We find that US corporations’ demand for liquidity is sensitive to two important factors: uncertainty facing the firm and the quality of corporate governance. Following prior research, we find that both factors have important influences on firms’ cash holdings. Our results also indicate that the interactions between uncertainty and governance measures are significant. From a policy perspective, these new findings indicate that both governance and the nature of uncertainty may play an important role in managing liquidity risks. Policy recommendations may not only be limited to changes in financial policy but may also include changes in corporate governance.
The Importance Of Being Known: Relationship Banking And Credit Limits, Atreya Chakraborty
The Importance Of Being Known: Relationship Banking And Credit Limits, Atreya Chakraborty
Atreya Chakraborty
This paper measures the importance of bank-firm relationships in obtaining higher credit “limits.” We use data from a relatively unused section of the National Survey of Small Business Finance (NSSBF, 1993) on credit limits, credit sources, and contract terms for firms with lines of credit from multiple banks. This lets us isolate the credit limit that each bank provides the same firm, eliminating the need to control for often immeasurable, unreliable, or firm-specific “soft” information. For a median Line of Credit (LOC) of $250,000, we find that a bank with a five-year information advantage provides a LOC limit that is …
Patterns Of Debt Use In Small Businesses: A Non-Parametric Analysis, Atreya Chakraborty
Patterns Of Debt Use In Small Businesses: A Non-Parametric Analysis, Atreya Chakraborty
Atreya Chakraborty
This paper uses non-parametric techniques to examine patterns of debt use by small firms and how such patterns differ across firm categories. The methodological goal is to use the richness of the firm level data and allow convincing presentations with minimum of assumptions. The procedures used provide easily comprehendible graphical descriptions of the data. The procedures augment what can be discerned from descriptive statistics by accounting for differential weights and allowing for clustering that is a native feature of cross-sectional data. We also investigate how firms could benefit if credit availability improves. Though a model-based analysis would be required to …
Antitakeover Amendments And Managerial Entrenchment: New Evidence From Investment Policy And Ceo Compensation, Atreya Chakraborty, Shahbaz Sheikh
Antitakeover Amendments And Managerial Entrenchment: New Evidence From Investment Policy And Ceo Compensation, Atreya Chakraborty, Shahbaz Sheikh
Atreya Chakraborty
We explore the relation between antitakeover amendments and firm investment in long-term assets. Empirical results indicate that an increase in the G-index of Gompers et al. (2003) is associated with less investment in R&D and reduced capital expenditures. These results suggest that protection from takeover threat increases managerial entrenchment and results in underinvestment. We also find that this increased entrenchment is associated with higher total and cash compensation and fewer performance incentives for managers, suggesting that protected managers influence their own pay. These results are robust to a number of robustness checks and remain significant after controlling for industry effects. …
The Impact Of Macroeconomic Uncertainty On Firms Changes In Financial Leverage, Atreya Chakraborty
The Impact Of Macroeconomic Uncertainty On Firms Changes In Financial Leverage, Atreya Chakraborty
Atreya Chakraborty
We investigate the relationship between a firm’s measures of corporate gov- ernance, macroeconomic uncertainty and changes in leverage. Recent research highlights the role of governance in financing decisions. Previous research also indicates that macroeconomic uncertainty affects a firm’s ability to borrow. In this paper we investigate how both these channels of influence affects firms’ financing decisions. Our findings show that macroeconomic uncertainty has an important role to play, both by itself and in interaction with a measure of corporate governance.
The Relationship Between Incentive Compensation And Forced Ceo Turnover, Atreya Chakraborty, Shahbaz Sheikh, Narayanan Subramanian
The Relationship Between Incentive Compensation And Forced Ceo Turnover, Atreya Chakraborty, Shahbaz Sheikh, Narayanan Subramanian
Atreya Chakraborty
We study the relationship between incentive compensation and performance related CEO turnover. Our theoretical model predicts that the slope of the compensation contract and forced turnover may be complements. Our results support this prediction. We find that incentives and turnover are positively related. This relationship however, varies with the equity ownership of CEOs and does not hold for CEOs who own more than 5% equity. Moreover, this relationship is stronger if the firm under performs its industry. Our results suggest that high-powered incentives may increase the signaling power of performance measures and lead to higher likelihood of turnover.
Takeover Defenses, Golden Parachutes, And Bargaining Over Stochastic Synergy Gains: A Note On Optimal Contracting, Atreya Chakraborty
Takeover Defenses, Golden Parachutes, And Bargaining Over Stochastic Synergy Gains: A Note On Optimal Contracting, Atreya Chakraborty
Atreya Chakraborty
We incorporate managerial risk aversion and stochasticity of takeover synergy gains into Harris’ (Harris, E.G. 1990. Antitakeover measures, golden parachutes, and target firm shareholder welfare. Rand Journal of Economics 21, no. 4 : 614–25.) bargaining model for the coexistence of antitakeover defenses and golden parachutes in corporate charters.We show that: (i) it is not always optimal that the target-firm shareholders adopt antitakeover defenses, (ii) the size of the golden parachute is proportional to the riskiness of the synergistic gains, and (iii) the target-firm shareholders are unequivocally better-off with golden parachutes than takeover-contingent stock options.
Golden Parachutes And Shark Repellents And Shareholders' Interests: Some New Evidence, Atreya Chakraborty
Golden Parachutes And Shark Repellents And Shareholders' Interests: Some New Evidence, Atreya Chakraborty
Atreya Chakraborty
In this paper we test for the motives for adopting golden parachutes and Anti-Takeover Amendments (ATAs). Firms that exhibited financial characteristics that were associated with a greater probability of hostile raids were also more likely to adopt golden parachutes or ATAs. We also find evidence to support the hypothesis that the adoption of golden parachutes and poison pills may in fact complement each other.
Corporate Governance Mechanisms And Performance Related Ceo Turnover, Atreya Chakraborty, Shahbaz A. Sheikh
Corporate Governance Mechanisms And Performance Related Ceo Turnover, Atreya Chakraborty, Shahbaz A. Sheikh
Atreya Chakraborty
This study investigates the impact of corporate governance mechanisms on performance related turnover. Our results indicate that smaller boards and institutional block holders are positively related to the likelihood of performance related turnover. CEOs that also hold the position of the chairman of the board or belong to a founding family face lower likelihood of turnover. CEO stock ownership is negatively related to turnover and CEOs who own 3 percent or more of their company stock face a significantly lower likelihood of performance related turnover. Moreover, protection from external control market has no effect either on the likelihood of turnover.
Termination Risk And Managerial Risk Taking, Atreya Chakraborty, Shahbaz A. Sheikh, Narayanana Subramanian
Termination Risk And Managerial Risk Taking, Atreya Chakraborty, Shahbaz A. Sheikh, Narayanana Subramanian
Atreya Chakraborty
We test the hypothesis that managers who face a high termination risk make less risky investments than the managers who face a low termination risk. A 10% increase in our measure of termination risk is associated with a 5%–23% decline in stock returns volatility for the median firm in our sample. We also find that for CEOs who are more likely to be fired in the event of investment failure, the inhibiting effect of termination risk appears to offset the positive effect of convexity of managerial compensation on managerial risk taking. These results are robust to alternative definitions of forced …
Repricing And Executive Turnover, Narayanan Subramanian, Atreya Chakraborty, Shahbaz Sheikh
Repricing And Executive Turnover, Narayanan Subramanian, Atreya Chakraborty, Shahbaz Sheikh
Atreya Chakraborty
We examine whether the threat of executive turnover faced by a firm affects its decision to reprice stock options held by its executives. We estimate a model of voluntary turnover among top executives and show that the predicted turnover from this model is positively related to the probability of repricing. The relationship is robust to the inclusion of several known determinants of repricing. Our results are consistent with a model in which a tight labor market makes executives hard to replace, forcing firms to reprice stock options when they go underwater.
Lending Relationships In Line-Of-Credit And Nonline-Of-Credit Loans: Evidence From Collateral Use In Small Business, Atreya Chakraborty
Lending Relationships In Line-Of-Credit And Nonline-Of-Credit Loans: Evidence From Collateral Use In Small Business, Atreya Chakraborty
Atreya Chakraborty
Lender–borrower relationships facilitate monitoring in small business loans. We investigate how the duration and scope of the bank–borrower relationship affect the decision to secure line-of-credit and nonline-of-credit loans. We find that the likelihood of collateralizing a line of credit decreases with the length of the bank–borrower relationship. For nonline-of-credit loans, however, the incidence of collateral pledge decreases with the number of lender-provided financial services used by the borrower. Our finding indicates that the mechanism through which banks obtain private information depends on the type of the loan. Pooling across loan types may dilute the impact of both the duration and …
Persistent Dependence In Foreign Exchange Rates? A Reexamination, Atreya Chakraborty
Persistent Dependence In Foreign Exchange Rates? A Reexamination, Atreya Chakraborty
Atreya Chakraborty
We test for stochastic long-memory behavior in the returns series of currency rates for eighteen industrial countries using a semiparametric fractional estimation method. A sensitivity analysis is also carried out to analyze the temporal stability of the longmemory parameter. Contrary to the findings of some previous studies alluding to the presence of long memory in major currency rates, our evidence provides wide support to the martingale model (and therefore for foreign exchange market efficiency) for our broader sample of foreign currency rates. Any inference of long-range dependence is fragile, especially for the major currency rates. However, long-memory dynamics are found …
Risk Sharing And The Market For Corporate Control: A Case For Golden Parachutes, Atreya Chakraborty
Risk Sharing And The Market For Corporate Control: A Case For Golden Parachutes, Atreya Chakraborty
Atreya Chakraborty
The predictability of security returns has received considerable attention in the literature, and yet the predictability of bond returns beyond the US markets has remained far less explored. Here we plan to remedy the shortcoming, and in that effort we analyse the ability of several predetermined information variables in predicting bond returns in the European market. We test if variables, commonly used for that matter in the context of other markets (such as inverse relative wealth, term spread, real bond yield and a January dummy) are also useful predictors of European bond returns. Due to some particularities of the sample …
Forward Premiums And Market Efficiency: Panel Unit-Root Evidence From The Term Structure Of Forward Premiums, Atreya Chakraborty
Forward Premiums And Market Efficiency: Panel Unit-Root Evidence From The Term Structure Of Forward Premiums, Atreya Chakraborty
Atreya Chakraborty
A plausible explanation for cointegration among spot currency rates determined in efficient markets is the existence of a stationary, time-varying currency risk premium. Such an interpretation is contingent upon stationarity of the forward premium. However, empirical evidence on the stochastic properties of the forward premium series has been inconclusive. We apply a panel unit-root test – the Johansen likelihood ratio (JLR) test – to forward exchange premiums by utilizing cross-sectional information from their term structure. In contrast to earlier studies, the JLR test provides decisive and temporally stable evidence in support of stationary forward premiums, and therefore foreign exchange market …
Nearest-Neighbor Forecasts Of U.S. Interest Rates, Atreya Chakraborty
Nearest-Neighbor Forecasts Of U.S. Interest Rates, Atreya Chakraborty
Atreya Chakraborty
We employ a nonlinear, nonparametric method to model the stochastic behavior of changes in several short and long term U.S. interest rates. We apply a nonlinear autoregression to the series using the locally weighted regression (LWR) estimation method, a nearest-neighbor method, and evaluate the forecasting performance with a measure of root mean square error (RMSE). We compare the forecasting performance of the nonparametric fit to the performance of two benchmark linear models: an autoregressive model and a random-walkwith-drift model. The nonparametric model exhibits greater out-of-sample forecast accuracy that that of the linear predictors for most U.S. interest rate series. The …
Marketing Strategy And The Use Of Information Technology: New Evidence From The Trucking Industry, Atreya Chakraborty
Marketing Strategy And The Use Of Information Technology: New Evidence From The Trucking Industry, Atreya Chakraborty
Atreya Chakraborty
Since the mid-1980s, many authors have investigated the influence of information technology (IT) on productivity. Until recently there has been no clear evidence that productivity increases as a result of IT spending. This productivity paradox is partly due to the difficulty in correctly identifying outputs, particularly in a service sector such as the trucking industry. Products are often differentiated by quality attributes of the service provided, rather than merely the physical content of the good delivered by motor carriers. A carrier's primary marketing objective, e.g. on-time performance vs. lowest-rate carrier, is precisely what differentiates a trucking firm's service. This paper …
Waves And Persistence In Merger And Acquisition Activity, Atreya Chakraborty
Waves And Persistence In Merger And Acquisition Activity, Atreya Chakraborty
Atreya Chakraborty
Markov regime-switching and sine-wave models have been used to capture the apparent wave-like behavior in aggregate U.S. merger and acquisition (M and A) activity. In this paper we offer an alternative characterization of the dynamic structure in M and A activity as a strongly dependent or long-memory process.
Takeover Defenses And Dilution: A Welfare Analysis, Atreya Chakraborty
Takeover Defenses And Dilution: A Welfare Analysis, Atreya Chakraborty
Atreya Chakraborty
Existing theory suggests that, in an unregulated market for corporate control, the level of takeovers is suboptimal because shareholders do not receive the full benefit from them. However, existing theory neglects that the threat of takeover may divert managerial effort from productive to defensive activities. This paper shows that, when this is considered, takeovers may, in fact, be excessive.
Poison Pills, Optimal Contracting, And The Market For Corporate Control: Evidence From Fortune 500 Firms, Atreya Chakraborty
Poison Pills, Optimal Contracting, And The Market For Corporate Control: Evidence From Fortune 500 Firms, Atreya Chakraborty
Atreya Chakraborty
The rationale for issuing poison pill securities remains unclear, despite the findings of a large body of prior research that these defenses adversely affect shareholder wealth. This paper investigates the hypothesis that the adoption of such defenses may reflect shareholders’ desire to contract efficiently with their managers in an environment characterized by hostile takeovers and uncertainty about the managers’ true performance. Unlike previous research, we focus on financial characteristics of firms as they relate to the motives for adopting such defenses. Our empirical research does not support the optimal contacting hypothesis. We interpret our results as supportive of the managerial …
Dynamic Futures Hedging In Currency Markets, Atreya Chakraborty
Dynamic Futures Hedging In Currency Markets, Atreya Chakraborty
Atreya Chakraborty
The hedging effectiveness of dynamic strategies is compared with static (traditional) ones using futures contracts for the leading five currencies. The traditional hedging model assumes time invariance in the joint distribution of spot and futures price changes thus leading to a constant optimal hedge ratio (OHR). However, if this timeinvariance assumption is violated, time-varying OHRs are appropriate for hedging purposes. A bivariate GARCH model is employed to estimate the joint distribution of spot and futures currency returns and the sequence of dynamic (time-varying) OHRs is constructed based upon the estimated parameters of the conditional covariance matrix. The empirical evidence strongly …
Uncertainty In Executive Compensation And Capital Investment: A Panel Study, Atreya Chakraborty
Uncertainty In Executive Compensation And Capital Investment: A Panel Study, Atreya Chakraborty
Atreya Chakraborty
We investigate whether uncertainty in CEO compensation influences the firm's investment decisions. We use panel data on compensation to estimate CEO income uncertainty and cross-sectional investment data to measure capital investment. Given the prospect of bearing extra risk, a rational agent reacts to minimize the impact of such risk. We provide evidence that CEOs with high earnings uncertainty invest less. We find that the negative impact of permanent earnings uncertainty on firm investment is larger than that of transitory earnings uncertainty. Our results are robust to several alternate specifications and can be helpful in building compensation packages that lead to …
Ricardian Equivalence: Further Evidence, Atreya Chakraborty
Ricardian Equivalence: Further Evidence, Atreya Chakraborty
Atreya Chakraborty
The Ricardian Hypothesis states that for a given level of government expenditure, aggregate demand is neutral to changes in the debt-to-tax ratio. Many economists argue that the private and government sectors have different planning horizons which will lead to deviations from Ricardian equivalence. In this paper, by using a model that nests both Ricardian equivalence and an alternative hypothesis, we empirically investigate whether the private sector has a shorter planning horizon than the government sector. The evidence presented in this study suggests that there is no difference between the planning horizons of the private and government sectors.
Agency Costs, Charter Amendments And The Market For Corporate Control, Atreya Chakraborty
Agency Costs, Charter Amendments And The Market For Corporate Control, Atreya Chakraborty
Atreya Chakraborty
The merger wave of the 1 980s, coupled with the sophistication of investment Banks' financial engineers, brought about a bewildering array of takeover defenses: "poison pills", " classified boards", "fair price amendments", and the like. Surveys have documented steep growth in various defensive amendments adopted by firms in recent years. The Investors? Responsibility Research Centre (IRRC), in surveying 424 of the Fortune 500 firms in 1986, found that 143 had adopted poison pills, 158 had fair price amendments and 223 had board of directors divided into classes. Jarrell and Poulsen's (1987) research notes the same trend in a previous survey …
Intensity Of Takeover Defenses: The Empirical Evidence, Atreya Chakraborty
Intensity Of Takeover Defenses: The Empirical Evidence, Atreya Chakraborty
Atreya Chakraborty
This paper focuses on the construction of an index of the intensity of firms' antitakeover defenses. While many aspects of corporate behavior are qualitative in nature, an evaluation of a firm's stance and the underlying motives for its behavior often depend on the elements of a set of qualitative factors. The interactions between these factors are likely to have important implications. In this context, only a composite measure will capture these interactions and their implications for firms' actions. We focus on the creation of an ordinal measure of anti-takeover defenses and utilize the ordered probit estimation technique to relate the …