Takeovers and the Media
Working paper; current version: April 8, 2010

This paper develops and empirically confirms a theory that explains why media content predicts takeover outcomes. It shows why target shareholders pay attention to the news, despite the risk of distorted reporting. To test the model’s prediction, this paper constructs a novel empirical measure that quantifies text-based media content pertaining to the acquirer. It then estimates the intertemporal link between this measure and the outcome of takeovers. Consistent with theory, positive media content about the acquirer predicts takeover success. Relative to other predictors proposed in the literature, the media measure is the most important explanatory variable in terms of significance and goodness of fit. Using text-based media content, this paper thus fills a major gap in our understanding of takeovers.

Debt, Equity, and Information
Working paper; current version: July 15, 2009

Straight debt and outside equity are the most fundamental types of financial securities. Yet, the diversity of outside claims has received little attention. This paper answers the question of why debt and equity are optimal instead of other forms of financial contracts. It simultaneously rationalizes the following stylized facts: (i) equity carries state-contingent cash flow rights, while debt-holders’ cash flow rights are state-independent outside of bankruptcy; (ii) equity carries unconditional monitoring rights, while debt-holders’ monitoring rights are contingent on bankruptcy; (iii) equity serves as an incentive contract that alleviates managerial moral hazard by inducing endogenous dividend signaling; (iv) equity financing prevails when companies have a large growth potential and relatively risky cash flows, and when a credible information policy to outside investors is cost-efficient to implement (e.g. good corporate governance or small firm size).

On the Signaling Role of the Media in Mergers and Acquisitions
Work in progress; coming soon

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