Panagiotis Andrikopoulos, Ji Sun and Jie Guo
The purpose of this paper is to analyse the role of ownership characteristics in a firm’s choice of alternative seasoned equity offering (SEO) methods, offer price discounts, and…
Abstract
Purpose
The purpose of this paper is to analyse the role of ownership characteristics in a firm’s choice of alternative seasoned equity offering (SEO) methods, offer price discounts, and market reactions to such announcements within the UK setting.
Design/methodology/approach
The study examines 697 SEO events of firms traded in the UK during the period 1998 to 2012 using multivariate and binomial logistic regression models. Ordinary least square models are also used to examine how ownership variables affect offer price discounts and stock market performance during the announcement of such corporate events.
Findings
The authors show that placings and open offers (OOs) are the preferred methods for issuing equity by firms with higher managerial ownership. Thus, the evidence strongly supports the prediction of the entrenched management hypothesis. Moreover, the probability of choosing a combination of placings and OOs is also found to be significantly related to issue size, offer discount, leverage, and previous stock performance. The results show that pre-issue market conditions have a significant effect on the choice of issue method with rights offers (ROs) and the combination of placings and OOs primarily utilised by firms for issuing equity during hot market periods.
Originality/value
Unlike prior SEOs’ studies in the UK that predominantly concentrate on the use of ROs and placings, this study examines, for the first time, the link between OOs and the combination of placings and OOs with ownership concentration. The authors also investigate how offer price discounts are related to the firms’ ownership structure, various company micro-characteristics and the wider market conditions.
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Zhenlong Li, Jie Guo and Panagiotis Andrikopoulos
The purpose of this paper is to examine the misvaluation hypothesis using a relative reference point (RRP) in mergers and acquisitions (M&A) market.
Abstract
Purpose
The purpose of this paper is to examine the misvaluation hypothesis using a relative reference point (RRP) in mergers and acquisitions (M&A) market.
Design/methodology/approach
The paper studies 1,878 M&A deals in the US market announced between January 1985 and December 2014.
Findings
The paper finds that bidders prefer stock payments when the RRP increases. The RRP is positively related to the offer premium and the target announcement returns. Although the RRP is negatively related to the bidder announcement returns, it is positively related to the long-run performance of bidders who time the market with overvalued stocks. The results are consistent with the predictions of the misvaluation hypothesis and reference point (RP) theory.
Originality/value
The authors construct a dynamic valuation framework to explain the misvaluation hypothesis by linking M&As’ misvaluation with RP theory. This paper provides direct evidence that the reference-dependence bias is prevalent for more experienced investors in major corporate investment decisions and offers fresh insights into the method of payment hypothesis.
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Tarek Ibrahim Eldomiaty, Panagiotis Andrikopoulos and Mina K. Bishara
Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions…
Abstract
Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions affect growth of the firm, the latter must also be affected by either favorable or adverse selection. Therefore, the core objective of this chapter is to examine the determinants of each financial decision and the effects on growth of the firm under conditions of information asymmetry.
Design/Methodology/Approach: This chapter uses data for the non-financial firms listed in S&P 500. The data cover quarterly periods from 1989 to 2014. The statistical tests include linearity, fixed, and random effects and normality. The generalized method of moments estimation method is employed in order to examine the relative significance and contribution of each financial decision on growth of the firm, respectively. Standard and proposed proxies of information asymmetry are discussed.
Findings: The results conclude that there is a variation in the impact of financial variables on growth of the firm at high and low levels of information asymmetry especially regarding investment and financing decisions. A similar picture emerges in the cases of firm size and industry effects. In addition, corporate dividen d policy has a similar effect on firm growth across all asymmetric levels. These findings prove that information asymmetry plays a vital role in the relationship between corporate financial decisions and growth of the firm. Finally, the results contribute to the vast literature on the estimation of information asymmetry by demonstrating that the classical and standard proxies for information asymmetry are not consistent in terms of the ability to differentiate between favorable or adverse selection (which corresponds to low and high level of information asymmetry).
Originality/Value: This chapter contributes to the related literature in two ways. First, this chapter offers updated empirical evidence on the way that financing, investment, and dividends decisions are made under conditions of favorable and adverse selection. Other related studies deal with each decision separately. Second, the study offers new proxies for measuring information asymmetry in order to reach robust estimates of the effects of financial decisions on growth of the firm under conditions of agency problems.
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Panagiotis Andrikopoulos, Andreas Albin Hoefer and Vasileios Kallinterakis
The purpose of this paper is to present and empirically test for the first time the hypothesis that herding in a market increases following the market's merger in an exchange…
Abstract
Purpose
The purpose of this paper is to present and empirically test for the first time the hypothesis that herding in a market increases following the market's merger in an exchange group.
Design/methodology/approach
The hypothesis is tested empirically in EURONEXT's four European equity markets (Belgium, France, the Netherlands and Portugal) on the premise of the Hwang and Salmon (2004) measure which allows us insight into the significance, structure and evolution of market herding. Tests are conducted for each market for the period prior to and after its merger into EURONEXT, controlling for a series of variables (market conditions, common risk factors, size) to gauge the robustness of the findings.
Findings
Results indicate that, with the exception of Portugal, herding grows in significance, yet declines in momentum post-merger. The authors ascribe the findings to EURONEXT's enhanced transparency (which makes it easier for investors to observe their peers’ trades, thus allowing them to infer and free-ride on their information) and its fast-moving informational dynamics that render herding movements shorter-lived. These results are robust when controlling for various market states and common risk factors, with deviations being observed when controlling for size and market volatility.
Originality/value
The study presents results for the first time on the impact of exchange mergers on herd behavior. The authors believe these to constitute useful stimulus for further research on the issue and bear important implications for regulators/policymakers in view of the ongoing proliferation of exchange mergers that has been underway since the 1990s.
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Charis Vlados, Theodore Koutroukis, Dimos Chatzinikolaou and Michail Demertzis
This chapter aims to conceptualize the general framework of policies to support entrepreneurship and competitiveness by indicating a move from a dispersive comprehension of…
Abstract
This chapter aims to conceptualize the general framework of policies to support entrepreneurship and competitiveness by indicating a move from a dispersive comprehension of competitiveness towards an integrated macro-meso-micro perspective, by taking as a case study the European South. First, it presents theoretical contributions to entrepreneurship enhancement policies, which mostly suggest that intervention can be effective in a fragmentary and relatively incoherent way. Then, it counter-proposes the ‘competitiveness web’ approach, which gives an integrated policy framework for the competitive strengthening and evolution of a socioeconomic system. In the framework of competitiveness web, we analyze and propose a meso-micro level policy via the Institutes of Local Development and Innovation (ILDI), which is a policy for empowering the local and regional business ecosystems through the enhancement of business innovation. Finally, by using the competitiveness web filter, we propose the structuration of a mechanism that could identify the level at which the socioeconomic entities in different spatial levels can articulate their policies for entrepreneurship enhancement in the macro-meso-micro integrated approach.