Wealth Gain Research Articles

The Chilean Neoliberal Model Enters into Crisis

According to the major macroeconomic indexes, in 1997 Chile completed a decade of notable dynamism. The rate of growth of the gross domestic product (GDP) was around 7 percent annually, and exports grew at an even higher rate. The proportion of gross investment reached previously unheardof levels. A constant oversupply of foreign currency, an increase in U.S. dollar reserves, and a revaluation of the Chilean peso (none of which had occurred since World War II) were all the results of a favorable but unstable commercial balance and the unprecedented influx of foreign capital. The fiscal budget increased with a continual surplus, and inflation was reduced to single-digit figures. The period was labeled the golden decade, and the international financial press cited Chile as a model worthy of imitation. The majority of Chileans, however, have declared their unhappiness, directly contradicting the idea of general prosperity contained in the 1998 UNDP Report on Human Development. There has been a loss of confidence in the free market because the benefits of modernity have been concentrated in a small minority who enjoy First World standards of living while the general population remains firmly ensconced in the Third World. Rapid wealth gain and unbridled consumerism have created an environment that foments increasing corruption and delinquency. Many people are trying to improve their situations through exhausting work schedules, with the result that Chile has one of the worst annual employment rates in the world, according to the International Labor Organization. The quality of urban life is worsening, with a corresponding deterioration in family and community life. Chileans feature in world statistics with high indexes of mental and psychological disorders and an increasing incidence of modern illnesses and their associated costs. There are shortages, delays, and marked educational inequalities. All these are objective elements of a general dissatisfaction with the economic model. Many people hope for important changes in economic and social policy.

The REIT Modernization Act of 1999

This article examines two effects of the passage of the REIT Modernization Act (RMA) of 1999: its impacts on REIT shareholder wealth and changes in REIT systematic risk in the period following its passage. The results indicate a modest positive wealth effect associated with the legislative events leading to its enactment. Our estimates of the wealth gain probably underestimate the true wealth gain because of the partially anticipated nature of the legislative process. We also document a significant decline in the systematic risk of REITs subsequent to the passage of the RMA. The evidence suggests that this decline is not attributable to a provision of the RMA that allows REITs to establish taxable subsidiaries.

Dividend Imputation and Shareholder Wealth: The Case of New Zealand

On April 1, 1988, New Zealand stopped the double taxation of dividends by implementing a full dividend imputation program. Because many believed that the tax advantage of debt had led to more highly leveraged firms subject to greater financial risk than was socially optimal, it was hoped the removal of incentives to finance with debt would result in a more efficient allocation of capital. The empirical results suggest that the shareholder wealth gain from dividend imputation was more than offset in firms with large debt levels. Moreover, an examination of debt ratios indicates debt levels declined in the post–imputation period.

Value creation and corporate diversification: the case of Sears, Roebuck & Co.

We provide clinical evidence of corporate restructuring at Sears, Roebuck & Co., beginning with the firm's 1981 diversification into financial services by acquiring Coldwell, Banker & Co. and Dean Witter, Reynolds Inc. The initial purchases resulted in a wealth gain to shareholders of approximately $400 million. Anticipated synergies did not materialize, however, and Sears’ retail performance deteriorated. Coincident with pressure from institutional investor activists in 1992, Sears announced the divestiture of financial services and a refocusing on retail operations. This led to a $1.113 billion gain for shareholders. Despite more than $1.5 billion in gains over the entire diversification/divestiture period, Sears’ shareholders suffered a significant opportunity loss when compared with a portfolio of focused firms.

Shareholder Wealth Effects of Corporate Spin-offs: The Worldwide Experience 1990-1998

This paper examines the effect of the initial spinoff announcement on shareholder wealth by means of an ex ante study. The event study is based on a sample of 210 worldwide spinoff announcements in the period 1990 to 1998. A Positive return of 2.6 % (3-day Cumulative abnormal return) is reported, consistent with previous studies. The results are compared across geographic regions and between completed and pending spinoffs. Moreover, evidence is provided for improved focus, the tax-status of the transaction and relative size of the spinoff as predictors for the wealth gain from spinoffs.

Will the future see the NHS and industry in partnership?

On the surface, it appears that the UK National Health Service (NHS) objective of health gain is far removed from that of wealth gain in the pharmaceutical industry sector. This creates tension between the 2 healthcare players. However, Professor Sally Davies, director of R&D for the NHS Executive London Region, argues that these objectives‘are not in total tension’but are in fact linked. She expanded on this argument at a recent meeting* organised by the British Association of Pharmaceutical Physicians.

Investment Opportunities, Leverage, and the Wealth Gains From acquistion Program Announcements

We examine the stock price reaction to announcements of the intention to pursue a program of external acquisitions. Using a 1977-92 sample of 65 firms that have announcement dates which (i) can be explicitly identified and (ii) are uncontaminated by other firm-specific events, we confirm the Schipper and Thompson (1983) finding that the mean gain to such announcements is positive. This supports the view that financial markets capitalize the expected benefits of an acquisition program at the time of announcement. Our main focus is on the sources of cross-sectional variation in these gains. Consistent with research on individual acquisitions, shareholders of firms with high Tobin's q gain significantly more than the shareholders of low q firms. However, the share price reaction is a monotonically increasing function of q only for firms with low leverage. Moreover, among the sub-groups of (i) q > 1 firms and (ii) firms that subsequently make at least one acquisition bid in the three years following the program announcement, the share price reaction is lower for high leverage firms than it is for low leverage firms. These results suggest that high leverage is seen as a potential impediment to a successful acquisition program.

On the Participation and Reputation of Financial Advisors in Corporate Acquisitions

In this article, we study the role of financial advisors in successful corporate acquisitions through tender offers. Our analysis distinguishes the advisor's role on the basis of whether the advisor's client is the target or the bidder. We document systematic patterns in takeover deal characteristics and wealth effects vis-a-vis advisor participation as well as advisor reputation. Differences in deal characteristics suggest that the main reason that an advisor is utilized is to overcome some disadvantage relative to the other party in the takeover contest. Whenever a target, either because of its relatively smaller size or because of a larger bidder toehold, or a bidder, because of the presence of multiple bidders, perceives itself as being in a position of weakness, it employs the services of an advisor. Additionally, we document that the weaker the position, the higher the reputation of the chosen advisor. We do not find a significant relation between bidder wealth effects and either bidder advisor participation or reputation, although we do observe higher combined (bidder and target) wealth gains when the bidder employs a higher reputation advisor. On the other hand, we find significant relations between target wealth gains and both advisor participation and reputation. Targets employ advisors primarily when the wealth gains to them are low. This finding, while seemingly counterintuitive, is consistent with the conjecture that if advisors possess special bargaining expertise, the demand for their services would be higher in low wealth gain deals. Conditional upon employing an advisor, however, we find a significantly positive relation between target wealth gains and advisor reputation. Furthermore, we find that at least a part of the additional target gains from employing a more highly reputed advisor are at the cost of the bidder's wealth. Our results suggest that reputable target advisors have superior abilities in creating value for their clients as well as bargaining on behalf of their clients, and that reputable bidder advisors exhibit superior ability to identify synergistic value.

Impact of the 1988 Basle Accord on International Banks

The ostensible purpose of the Basle Accord was to standardize bank-capital regulations among the twelve leading industrial countries. Its ulterior goal was to the playing field by eliminating a funding-cost advantage of Japanese banks that had allowed them to capture more than one-third of international lending. The wealth gain for Japanese bank shareholders was 31.63 percent Wealth effects for shareholders of non-Japanese banks were not significant. These results suggest that the Basle Accord did not eliminate the pricing advantage of Japanese banks, challenging the non-Japanese regulators' contention that the regulation would help level the playing field.

Impact of the 1988 Basle Accord on International Banks

ABSTRACTThe ostensible purpose of the Basle Accord was to standardize bank‐capital regulations among the twelve leading industrial countries. Its ulterior goal was to “level the playing field” by eliminating a funding‐cost advantage of Japanese banks that had allowed them to capture more than one‐third of international lending. The wealth gain for Japanese bank shareholders was 31.63 percent. Wealth effects for shareholders of non‐Japanese banks were not significant. These results suggest that the Basle Accord did not eliminate the pricing advantage of Japanese banks, challenging the non‐Japanese regulators' contention that the regulation would help level the playing field.

Stockholder wealth effects of Eurobond financing: A Canadian perspective

This paper empirically assesses stockholder wealth gains from the issuance of Canadian dollar denominated Eurobonds, in lieu of domestic bonds, for a sample of Canadian firms which employed both types of bond financing during the period 1983- 1990. We find no difference in stockholder wealth gain achieved from issuing Eurobonds than from issuing domestic bonds. This leads us to conclude that Eurobond financing bargains were nonexistent during the time period of our study.

SHAREHOLDER WEALTH GAINS IN MERGERS: EFFECT OF SYNERGY AND OWNERSHIP STRUCTURE

Journal of Business Finance & AccountingVolume 23, Issue 5-6 p. 673-698 SHAREHOLDER WEALTH GAINS IN MERGERS: EFFECT OF SYNERGY AND OWNERSHIP STRUCTURE Sudi Sudarsanam, Corresponding Author Sudi SudarsanamSudi Sudarsanam, City University Business School, Frobisher Crescent, Barbican Centre, London EC2Y 8HB, UK.Search for more papers by this authorPeter Holl, Peter HollSearch for more papers by this authorAyo Salami, Ayo Salami The authors are respectively, Senior Lecturer in Finance and Accounting; Senior Lecturer in Economics; and ESRC Teaching Fellow in Accounting at the City University Business School. They would like to thank the anonymous referee for helpful comments on an earlier draft of this paper.Search for more papers by this author Sudi Sudarsanam, Corresponding Author Sudi SudarsanamSudi Sudarsanam, City University Business School, Frobisher Crescent, Barbican Centre, London EC2Y 8HB, UK.Search for more papers by this authorPeter Holl, Peter HollSearch for more papers by this authorAyo Salami, Ayo Salami The authors are respectively, Senior Lecturer in Finance and Accounting; Senior Lecturer in Economics; and ESRC Teaching Fellow in Accounting at the City University Business School. They would like to thank the anonymous referee for helpful comments on an earlier draft of this paper.Search for more papers by this author First published: July 1996 https://doi.org/10.1111/j.1468-5957.1996.tb01148.xCitations: 83 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume23, Issue5-6July 1996Pages 673-698 RelatedInformation

A requiem for the USA Is small shareholder monitoring effective?

From 1986 to 1993, the United Shareholders Association (USA) provided a conduit through which small shareholders could unite and attempt to influence the governance of large US corporations. We show that the USA targeted large firms that underperformed the market, that its influence increased from 1990 to 1993, and that USA-Sponsored proposals were more successful when the target firm was a poor performer with high institutional ownership. The announcement of 53 USA-negotiated agreements is associated with an average abnormal return of 0.9% or a total shareholder wealth gain of $1.3 billion, suggesting that USA-sponsored shareholder activism enhanced shareholder value.

Wealth effects of asset securitization

This paper examines changes in wealth for firms that securitize assets. Findings are industry specific with wealth increase for finance companies, with no wealth change for industrial companies and automobile companies, and with wealth loss for banks. Further examination, however, reveals that excess returns for banks are significantly related to financial slack in the quarter preceding the securitization announcement. Findings indicate that strong banks experience wealth gain while weak banks experience wealth loss upon the announcement of asset securitization.

Escaping the Transitional Gains Trap

Government policies that increase an industry's cash flows, such as tax preferences or direct subsidies, initially raise the prices of assets in that industry. If new firms can enter the industry, asset values return to their prepolicy intervention level. At the new equilibrium, all firms in the industry earn normal returns, although too much capital and labor are now involved in the industry if the market was efficient prior to the enactment of the policy. If entry is not allowed or is not sufficient to dissipate the initial increase in asset prices, only those who owned assets at the time of the policy change receive the wealth gain. Subsequent owners of the assets will receive normal returns because the excess cash flow will be capitalized into the asset prices. Policy changes that reduce the cash flows to an industry by eliminating tax preferences or subsidies have the opposite effects. Initially the policy change reduces the cash flow to an industry and lowers the returns on assets. Disinvestment occurs to restore the equilibrium. Firms that entered the industry after the initial policy change lose wealth. Firms that were in business prior to the enactment of the initial privilege simply lose the gain that they received at the time of the initial enactment. If workers' income in their new employment is less than the earnings that they received in the sector aided by the policy privilege, then they were earning in excess of opportunity costs (rents) and are now earning their normal wage. Should government compensate those citizens who suffer wealth because public policies change? Hochman [1974] argues that, in most situations, the ethical answer is yes. He states, current taxicab operators invested in existing franchises at the market price and did so with reason to believe that the licensing rules under which these franchises had been capitalized were permanent and legitimate. Reluctance to impose these creates the transitional gains trap [Tullock, 1975]. Tullock argues that the costs of identifying those who ought to receive compensation would in general outweigh the benefits of abolishing an inefficient policy. All we should do is avoid the enactment of such policy traps in the future. The claim that policy changes create windfall losses relies on a static model in which investors' expectations regarding future policy changes play no role. Posner [1980] maintains that compensation is not necessary to achieve equity because asset prices reflect the likelihood that majority-rule political activity will create wealth losses. Cordes, Goldfarb, and Barth [ 1983] consider the role of expectations of future policy changes in their assessment of whether losers should be compensated. They argue that when policy changes are perfectly anticipated, compensation is inappropriate because those expectations were taken into account when investment choices were

The Wealth Effect of International Joint Ventures: The Case of U.S. Investment in China

This study provides direct evidence of the wealth effect of international joint venture announcements on the value of U.S. firms investing in China from 1979 to 1990. Using a sample of 88 announcements, we find statistically significant positive portfolio excess returns at the joint venture announcements. The results lend strong support to the positive-multinational-network hypothesis, which predicts that a firm's value increases when it expands into global markets. Further, shareholders of U.S. firms investing a relatively small amount in the joint ventures gain positive excess returns, while shareholders of those investing a relatively large amount earn insignificant excess returns. The implication is that the wealth gain arises primarily from the value of a collection of real options acquired by the U.S. firms through their investments in China.