Title

Three essays on corporate control transactions

Date of Award

2009

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

Advisor(s)

Yildiray Yildirim

Keywords

Corporate control, LBO, Acquisition, Bugout, Arbitrage, Mergers, Leveraged, Leveraged buyouts

Subject Categories

Business | Corporate Finance

Abstract

The three essays that comprise this dissertation examine corporate control transactions. The first essay explores the relationship between risk arbitrageurs and financial advisors in mergers. Empirical and theoretical literature in finance has identified an important role for highly reputable financial advisors and merger arbitrageurs in the world of acquisitions. I argue that these groups have such interests in the outcome of acquisitions that their activities may be complements in some cases, and substitutes in other cases. I find evidence of a relationship between arbitrageurs and financial advisors in acquisitions. I also document a greater economic impact arising from the activities of arbitrageurs than from financial advisors.

The second essay provides an overview and analysis of the second wave of leveraged buyouts (LBOs), which began in the 1990s and continues today. I use the buyouts of the late 1980s as my reference point. I document a variety of developments in the LBO market, with attention paid to deal pricing and capital structure. My results indicate a decrease in target valuation and debt multiples over time. Deal premiums are lower in the 1990s and 2000s, but this is explained by changes in firm characteristics. I show that target firms are larger and display higher free cash flow in each decade. Also, riskier firms are being targeted now than in the 1980s, but LBO sponsor equity participation is also higher.

In the third essay, I examine the effects of LBOs on the industry rivals of the firms that undertake the LBO. Specifically, I are interested in determining whether or not the rivals that remain public take steps to change their governance mechanisms to emulate the firms that go private. Specifically, I examine CEO compensation, and the compensation and composition of the board of directors. I document an increase in the number of options awarded to CEOs following LBO activity in an industry, and a decrease in annual bonuses and restricted stock grants as LBO activity slows down. My results also indicate the likelihood of changing the CEO is positively correlated with LBO activity. I also demonstrate significant changes in the pay for directors and the structure of the board after LBOs occur in an industry. Overall, my examination yields results that indicate firms effectuate significant corporate governance changes following an LBO event in their industry.

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