Assistant Professor of Economics
Entry and Competition in Takeover Auctions with Matthew Gentry, AFA 2015 Boston Annual Meetings Paper.
Abstract: We propose a method that shows how the answer to the question "How should a firm be sold?" depends on the ability of auctions and negotiations to leverage potential competition. Negotiations leverage potential competition when a standing bidder shades up their offer price to deter entry by other buyers. Auctions leverage potential competition by encouraging entry into competitive bidding by invited potential bidders, thus generating an attractive pool of actual bidders. We show that potential bidders in takeover auctions face substantial pre-entry uncertainty about their values for a target, and that this impairs the ability of auctions to leverage potential competition, since many attractive potential buyers are absent from the pool of participating bidders. Failure to account for endogeneity in the size and composition of the entering bidder pool leads to upward bias in estimated auction revenue, relative to a negotiation. Accounting for endogenous determination of the size and competition of the set of bidders, we show that negotiations can provide a more effective way to leverage potential competition. We show that this effect is sufficiently large that most targets should be sold via negotiations, even in absence of a formal go-shop procedure. These results call into question claims that target directors violate their fiduciary duty by selling a company via a negotiated transaction, even in the absence of a formal market check.
International Experience and Cross-Border Acquisitions. Under review.
Abstract: Does experience facilitate cross-border mergers? I show that firms are more likely to conduct an international merger when they have a current director with cross-border deal experience gained during prior service on another firm's board. First-time international acquisitions are more successful when firms initiating them have a director with cross-border deal experience. International acquirers are more likely to buy targets headquartered in the specific country where a director has international merger experience. This effect is most pronounced for acquisitions of targets headquartered in unfamiliar foreign environments, and least pronounced at firms with cross-border experience gained from a prior international merger.
Executive Employment Histories and the Pattern of Acquisitions with Peter Rousseau, Forthcoming, Journal of Financial and Quantitative Analysis.
Abstract: We trace directors through time and across firms to study whether acquirers' exposures to non-public information about potential targets through board service histories affect the market for corporate control. In a sample of publicly-traded U.S. firms from 1996 through 2006, we find that acquirers are about five times more likely to buy firms at which their directors once served. These effects are stronger when the acquirer has better corporate governance, the interlocked director has a larger ownership stake at the acquirer, or the director played an important role during past service at the target. The findings are robust to endogeneity of board composition and to controls for network connectivity and conventional inter-firm interlocks.
Pampered Bureaucracy, Political Stability, and Trade Integration with Ben Zissimos, under review.
Abstract: This paper shows how, under threat of revolution, a nation's elite are able to maintain political stability and hence ownership of their wealth by creating or expanding a 'pampered bureaucracy.' The elite thus divert part of an otherwise entrepreneurial middle class from more productive manufacturing activities, reducing economic efficiency. If the country has a comparative advantage in primary products, trade integration is potentially destabilizing since it raises the payoff to the lower classes of mounting a revolution and challenging the elite for their wealth. In that case trade integration mandates expansion of the pampered bureaucracy. Therefore, trade integration may actually reduce economic efficiency. The econometric results provide supportive evidence for our model.
Monetization and Growth in Colonial New England, 1703-1749 with Peter Rousseau, Explorations in Economic History, 48, 600-613.
Abstract: We examine econometrically the real effects of paper money's introduction into colonial New England over the 1703-1749 period. Departing from earlier analyses that focus primarily on the depreciation of paper money in the region, we show that expansion of the money stock promoted growth in modern sector activity and not the other way around. We also find that bills emitted for seigniorage purposes had a positive effect on the modern sector, while bills issued through loan banks did not.
Do non-profit hospitals provide more charity care when faced with a mandatory minimum standard? Evidence from Texas with Francis Kennedy, Laurie Burney and Jennifer Troyer, Journal of Accounting and Public Policy, 29. 242-258.
Abstract: Nonprofit hospitals, which comprise more than 50% of hospitals in the United States, receive federal tax exemption with the expectation that they will provide charity care and community benefits that would otherwise be funded directly by the government. In recent years, many for-profit hospitals have converted to nonprofit status, thus obtaining tax exemption without necessarily providing more charity care. We study this issue by examining the effects of a sudden policy shift enacted by Texas legislators, which required charity care provision at a minimum threshold in order for hospitals to retain tax-exempt status. The legislation led to an increase in charity care provision by hospitals that initially did not meet the requirement, but led to a decrease in charity care provision by hospitals that initially provided more charity care than the legislation required. We show that overall, the law did not lead to an increase in charity care provision by nonprofit hospitals in Texas.