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Corporate Development (Fach) / Forschungsfragen (Lektion)
- Empirical study by von Lilienfeld-Toal and Ruenzi (2007) CEO share ownership and stock returns study Collect information on firms S&P 500 and 1500 index 1994-2005 (stock returns and shareholdings of ceo) in those, 60% have ceo with positive amount of shares 8% have ceo who owns more than 10% Regression: Return as dependent variable, dummy for CEO owns more than 10% result: Firms in which the CEO holds more than 10% of shares earn abnormal returns of about 12.1 - 13.2 %
- Malemdier & Tate (2007): Who makes acquisitions? CEO overconfidence and the market's reaction idea and hypotheses: CEOs are overconfident if they persistently choose to bear high company specific risk although they could diversify by selling some company stock Overconfident CEOs are also overconfident in their ability to create value - overestimate value of acquisition Thus, higher frequency of acquisitions with lower value Data 394 large us firms from 1980-1994 presonal investmnt decisions of managers (CEO) Articles written about CEO (analysis of words) educational background of CEO company related data (merger databases, firm size, cash flow etc.) Measures of overconfidence Longholder, Pre-Post-Holder Holder 67 Dependent variable Binary, 1 if firms made at least one successfull bid in given year cumulative abnormal return on the bidder's stock from the day before announcement till they day after Results CEOs being overconfident tend to undertake more acquisitions Reactions to acquisitions by overconfidetn CEOs are more negative than those towards less overconfident CEOs
- Daimler and Chrysler Case Study May 1998 - Merger between both companies DaimlerChrysler became thirs biggest automotive manufacturer Motivation: potential synergy effects 2001: DCX market capitalisation half of daimler benz before merger Reason clash of cultures Daimler: Central decision making, autorative and bureaucratic, written analysis/plan Chrysler: fast, efficient, creative decisions, trial-and-error, egalitarian structures Daimler uncompromising quality standards chrysler cost control daimler Equalized compensation structure chrysler considerably higher management compensation Attempts to bring cultures together were made (compensation leveling, etc.)
- Weber R.A. and C.Camerer (2003): Cultural Conflict and Merger Failure: An Experimental Approach Experimental Design Students have to fulfill task together for which they deveop shared language/ knowledge/ understanding The code developed enables participants to fulfill the task more efficiently idea Simplified, controlled and abstract set-up rather underestimates cultural conflict Group taks 16 different pictures - describe what is on it - wages depend on speed Each group has a manager and an employee (20) - Make belief how fast it will be after merger - afterwards one manager stays and explains again (10) questionaire after merger (competence of teammates, complexity of task) results performance mostly lower after merger reduction of performance is not due to group size 77% were too optimistic regarding their estimates after merger - difficulty of merger is underestimated rating worse for new manager by new employee participants of overtaking company realize the task is more difficut for new employees more assigned to competencies than to the new situation
- Case study Procter and Gamble and Gilette CEOs know each other very well products complement each other P&G more feminine, Gilette more masculine cultural differences P&G slow decision processes, Gilette fast decision, clear goals Culture identified as a fundamental factor of success Top talents identified and placed strategically many attempts to make clash of cultures work
- Laboratory experimenta by Hoppe & Schmit (2011) Research question Can contracts mitigate the hold-up problem? In particular, when renegotiation cannot be prevented Basic situation modeled One Buyer and one seller who can trade on unit of an indivisible good in future period 2 in period 1, seller can make observable (relation-specific) investment improving the good's value 4 contracting possibilities (experimental treatments) No contract, Fixed-price contract, option contract (and with renegotiation) Experimental Design Relation-specific investment eI 0 or 8 depending on investment, value of good is either 10 or 22 first-best is achieved by high investment and if trade takes place Experimental procedure 472 participants in four treatments average payoff 13,15€, all sessions anonymous Conclusion compared to no-contract, fixed-price contract does not improve investment incentivees an option contract with no renegotiation is an effective means to weaken hold-up contraty to theory an option contract with renegotiation still improves investments compared to the no-contract setting - contracts serve as referencing point
- Field Eperiment by Iyer & Schoar (2010): Limited evidence on how and whether expectations about hold-up affect type of contracting and whether parties engage in the contract in the first place setup Auditors were hired to purchase large orders of pens from wholesalers two treatments: buyers oder plain pens or printed pens (specific investment) order size between 500 and 750 bargainig rules equal for all Questions are prices negotiated upfront affected by specificity of investment? are upfront payments affected by specificity of investment is renegotiation affected by specificity of investment? result Price charged seems not affected by the specificity of investment demanded upfront payments are higher in case of printed pens than plain pens - wholesalers fear being held up However, upfront payments are rather low indicating a certain level of confidence of wholesalers contracts are rahter negotiated in case of specificity investments and discounts for printed pens are higher than for plain pens Relation specific investments affect contract negotiation and structure On average, low advance payments seem sufficient to engage in contracting
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