The Effects of Antitrust Laws on Horizontal Mergers: International Evidence
Journal of Financial and Quantitative Analysis,
This study examines how antitrust law adoptions affect horizontal merger and acquisition (M&A) outcomes. Using the staggered introduction of competition laws in 20 countries, we find antitrust regulation decreases acquirers’ five-day cumulative abnormal returns surrounding horizontal merger announcements. A decrease in deal value, target book assets, and industry peers' announcement returns are consistent with the market power hypothesis. Exploiting antitrust law adoptions addresses a downward bias to an estimated effect of antitrust enforcement (Baker (2003)). The potential bias from heterogeneous treatment effects does not nullify our results. Overall, antitrust policies seem to deter post-merger monopolistic gains, potentially improving customer welfare.
COVID-19 Pandemic and Global Corporate CDS Spreads
Journal of Banking and Finance,
We examine the impact of the COVID-19 pandemic on the credit risk of companies around the world. We find that increased infection rates affect firms more adversely as reflected by the wider increase in their credit default swap (CDS) spreads if they are larger, more leveraged, closer to default, have worse governance and more limited stakeholder engagement, and operate in more highly exposed industries. We observe that country-level determinants such as GDP, political stability, foreign direct investment, and commitment to crisis management (income support, health and lockdown policies) also affect the sensitivity of CDS spreads to COVID-19 infection rates. A negative amplification effect exists for firms with high default probability in countries with fiscal constraints. A direct comparison between global CDS and stock markets reveals that the CDS market prices in a distinct set of corporate traits and government policies in pandemic times.
Corporate Culture and Firm Value: Evidence from Crisis
Journal of Banking and Finance,
Based on the Competing Values Framework (CVF), we score 10-K text to measure company culture in four types (collaborative, controlling, competitive, and creative) and examine its role in firm stability. We find that firms with higher controlling culture fared significantly better during the 2008–09 crisis. Firms with stronger controlling culture experienced fewer layoffs, less negative asset growth, greater debt issuance, and increased access to credit-line facilities during the crisis. The positive effect of the controlling culture is stronger among the financially-constrained firms. Overall, the controlling culture improves firm stability through greater support from capital providers.
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29.09.2022 • 23/2022
Joint Economic Forecast 2/2022: Energy crisis: inflation, recession, welfare loss
The crisis on the gas markets is having a severe impact on the German economy. Soaring gas prices are drastically increasing energy costs, leading to a massive reduction of the purchasing power. Despite a decline in the second half of the year, gross domestic product is expected to expand by 1.4% this year. For the coming year, the institutes expect a contraction by 0.4%, followed by an increase of 1.9% in 2024.
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Firm Social Networks, Trust, and Security Issuances
European Journal of Finance,
We observe that public firms are more likely to issue seasoned stocks rather than bonds when theirs boards are more socially-connected. These connected issuers experience better announcement-period stock returns and attract more institutional investors. This social-connection effect is stronger for firms with severe information asymmetry, higher risk of being undersubscribed, and more visible to investors. Our conjecture is this social-network effect is driven by trust in issuing firms. Given stocks are more sensitive to trust, these trusted firms are more likely to issue stocks than bonds. Trustworthiness plays an important role in firms’ security issuances in capital markets.
Military Directors, Governance and Firm Behavior
Advances in Accounting,
We build a large dataset of board of directors with military experience and document a substantial and persistent presence of independent military directors serving on corporate boards. We find that firms with independent military directors are associated with better monitoring outcomes, including less excessive CEO compensation, greater forced CEO turnover–performance sensitivity, and less earnings management.