The Role of Media in Takeovers: Theory and Evidence

Semifinalist for best paper award in corporate finance, 2011 FMA Annual Meeting

Working paper (under review); current version: February 5, 2012
A previous version of this paper was circulated under the title "Takeovers and the Media."

Abstract:
Using text-based media content, this paper develops and empirically confirms a theory that explains how the media predicts takeover outcomes. It shows that 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 marginal effect, significance, and goodness of fit.

Debt, Equity, and Information

Working paper (under review); current version: November 27, 2011

Abstract:
Straight debt and outside equity are the most fundamental types of financial securities. Yet, this diversity of outside claims has received little attention in the security design literature. 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).

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