2020 - Reprints: Finance, Accounting and Insurance
Institutional investors and firm performance: Evidence from IPOs, North American Journal of Economics and Finance, 51(1), 2020
A. Michel, J. Oded and I. Shaked
(Reprint no. 358)
Research no.: 03250100
We investigate the post-IPO evolution of institutional investor holdings and the manner in which operating performance is related to these holdings. During the first year after the IPO, average institutional holdings increase from 24% to 36% of shares outstanding and stabilize at about 42% by the end of the second year. We document that post-IPO operating performance is positively related to institutional holdings, but this relation subsides in the third year after the IPO. Overall, our findings indicate that institutional ownership is a valid indicator of the firm’s operating performance in its initial years as a public company.
Payout policy, financial flexibility, and agency costs of free cash flow, Journal of Business Finance & Accounting, 47(1-2), 218-252, 2020
J. Oded
(Reprint no. 359)
Research no.: 03230100
This paper explains how firms choose between dividends and open-market repurchase programs, the prevailing method that firms use to disburse cash today. While earlier theories about payout policy are motivated by signaling, the motivation for payout in this paper is to prevent the waste of free cash by self-interested insiders. In the model, dividends prevent free cash waste by forcing cash out, but result in underinvestment if the cash paid out is later needed for operations. Open-market programs stimulate payout by providing personal gains to informed insiders that are associated with the firm’s repurchase trade. Yet, they also avoid the underinvestment problem by leaving insiders the option to cancel the payout. Because their execution is optional, however, open-market programs only partially prevent the waste of free cash. The model provides testable predictions that are generally consistent with the empirical evidence.
Do security breaches matter? The shareholder puzzle, European Financial Management, 26, 288-315, 2020
A. Michel, J. Oded and I. Shaked
(Reprint no. 361)
Research no. 03270100
This article analyzes the effect of computer breaches on publicly traded equities from 2005 to 2017. An event study is performed and breaches analyzed conditioned on whether the breach announcement has been made in the mainstream media or through other channels. We find that in the period prior to the announcement date in the media, the mean abnormal return is negative, reflecting a likely leakage of information. In the period following the announcement date, the mean abnormal return is positive, often more than offsetting the previous declines. The findings have important implications for analysts, portfolio managers, institutional investors, and regulators.
