Equity Carveouts, Agency Costs, and Firm Value

Transcription

1 Lukas Junker Equity Carveouts, Agency Costs, and Firm Value With a foreword by Prof. Dr. Malte Brettel Deutscher Universitats-Verlag

2 Table of Contents 1 Introduction Problem statement ' Definitions Group of Companies ECO Motivation: The special interest in ECOs Dual character of ECOs as means of financing and reorganization Empirical significance of ECOs on the German capital market Existing ECO research U.S. ECO literature German ECO literature Gaps in existing research Objective Core research questions Limitations Outline 25 2 Theoretical Foundations Section outline Theoretical foundations of corporate finance Need fora theory of the firm New Institutional Economics Origins of New Institutional Economics The contractual view of the firm Subdisciphnes of New Institutional Economics Agency theory as foundation of corporate finance Agency theory and its implications The core question of agency theory Development of agency theory and its subdisciphnes The two subdisciplines of agency theory Principal-agent theory Positive Agency Theory Application of agency theory to empirical corporate finance 40 XI

3 2.4.1 The classic corporate finance approach to agency theory Critique A two-dimensional agency framework for the analysis of ECOs Efficiency criterion and framework dimensions First dimension: determinants of agency costs Determinants of agency costs in Positive Agency Theory Determinants of agency costs in Principal-Agent Theory Synthesis Second dimension' agency relationships affected by ECOs Organizational hierarchies as cascades of agency relationships Groups of companies as two-layer agency structures ECOs as special case of two-layer agency structures Two-dimensional agency framework for the analysis ECOs 64 Hypothesis development Section outline s Development of value levers Potentia'effects of ECOs on agency costs Aggregation of framework compartments into four value levers Lever 1: Focus and investment efficiency Treatment in the ECO literature Focus and corporate valuation Theoretical perspectives Empirical evidence Inefficient investment and agency costs Forms of inefficient investment in diversified firms Inefficient across-firm allocations Inefficient withln-firm allocations on internal capital markets Focus, investment efficiency, and ECOs Lever 2: Information asymmetries and disclosure Treatment in the ECO literature Information asymmetries and corporate valuation Theoretical perspectives Empirical evidence Disclosure and agency costs 95 XII

4 Role and types of disclosure Mandatory disclosure and the institutional environment Voluntary disclosure and managerial incentives Information asymmetries, disclosure, and ECOs Lever 3: Incentive compensation Treatment in the ECO literature Incentive compensation and corporate valuation Theoretical perspectives Empirical evidence Incentive compensation and agency costs Determinants of optimal incentive compensation Stock and options as alternative forms of incentive compensation Compensation of division managers Incentive compensation and ECOs Lever 4: Ownership concentration Treatment in the ECO literature Ownership concentration and corporate valuation Theoretical perspectives Empirical evidence Blockholders and agency costs Benefits of blockholders Costs of blockholders Role of the institutional environment Empirical evidence on the agency costs of blockholders Ownership concentration and ECOs Summary of hypotheses Empirical Evidence Section Outline Data Sample collection procedure and data sources Sample descriptive statistics Methodology Overarching empirical design 158 XIII

5 Operationalization of efficiency criterion Methods used in the ECO literature and their imitations Measurement of short-term abnormal returns, event study Concept and relevance of event studies Definition of event and event period Estimation of expected return Abnormal return calculation and tests for significance The standard model and extensions Seemingly unrelated regression GARCH Nonparametric tests and bootstrap Summary of empirical design Measurement of long-term abnormal returns Concept and relevance of long-term returns analysis Calculation of long-term returns Estimation of expected return Tests for significance Summary of empirical design Hypothesis tests: cross-sectional regression Concept and relevance of cross-sectional regression analysis Regression assumptions and diagnostic tests Model specification Explanatory variable definitions Summary of explanatory variables Variables relating to focus and investment efficiency Variables relating to information asymmetries and disclosure Variables relating to incentive compensation Variables relating to ownership concentration Control variables: Operating ratios and market timing Dependent variable definitions Expected signs of explanatory variables Summary of empirical design Results Abnormal returns Short-term abnormal returns 240 XIV

6 Results for the full sample Results for the two subsamples Long-term abnormal returns Results for the full sample Results for the two subsamples Cross-sectional regression Explanatory variable descriptive statistics Short-term abnormal returns regressions Results for the full model Results for the reduced models Robustness checks Long-term abnormal returns regressions Results for the full and reduced models Robustness checks Discussion The impact of ECOs on firm value Short-term impact Long-term impact Overall impact and implications The determinants of the impact of ECOs on firm value Agency costs and the capital market reaction Comparison to previous ECO literature Relative importance of the four value levers Implications for research and practice Research implications Practical implications Conclusion References 367 XV