Central Hub M&A Advisors

We examine how an M&A advisor’s position in the network of investment banks affects its ability to create value for acquirers in takeover transactions. We show that acquirers enlisting the services of more centrally positioned M&A advisors enjoy higher announcement abnormal returns and pay lower takeover premiums. Consistent with the idea that central network positions convey an information advantage, we find that the effects are stronger for acquirers facing greater target information asymmetry and for M&A advisors depending more on networks for target-specific information. The information advantage primarily comes from network contacts that had previously assisted the targets in equity issuance. Centrally positioned advisors charge premium fees; network banks appear to enjoy a significant advantage in the competition for future co-advisory appointments.

Financing Corporate Growth

Considerable research tackles the aggregate impact of debt financing. We show that equity is more important for firm growth than generally understood. A dollar of equity issuance is associated with an extra $0.93 of real assets, whereas a dollar of debt issuance is associated with an extra $0.14. Firms issue equity first, then increase real assets, and, finally, issue debt while repurchasing equity. We explain this sequence using a model in which debt is tax preferred relative to equity but is subject to limited commitment. We use the estimated model to evaluate how several government policies affect corporate growth.

Misvaluation and Corporate Inventiveness

We test how market overvaluation affects corporate innovation. Estimated stock overvaluation is strongly associated with measures of innovative inventiveness (novelty, originality, and scope), as well as research and development (R&D) and innovative output (patent and citation counts). Misvaluation affects R&D more via a nonequity channel than via equity issuance. The sensitivity of innovative inventiveness to misvaluation increases with share turnover and overvaluation. The frequency of exceptionally high innovative inputs/outputs increases with overvaluation. This evidence suggests that market overvaluation may generate social value by increasing innovative output and encouraging firms to engage in “moon shots.”

CASH FLOW, DEBT ISSUANCE, EQUITY ISSUANCE, AND FIXED ASSET INVESTMENT ON MANUFACTURE COMPANY 2010-2014CASH FLOW, DEBT ISSUANCE, EQUITY ISSUANCE, AND FIXED ASSET INVESTMENT ON MANUFACTURE COMPANY 2010-2014

Matters about financing decision based on pecking order theory’s hierarchy are currently appealing. This research strives to discover how corporate’s fixed asset investment reacts to cash flow, debt issuance, and equity issuance. Researcher uses 75 samples of manufacturing company in Indonesia during 2010-2014 period with 199 firm-year observation. Multiple linear regression’s result indicates that cash flow and debt issuance have influence towards corporate’s fixed asset investment, but the equity issuance have no influence towards corporate’s fixed asset investment. Also regression coefficient exhibits that manufacturing company in Indonesia follows pecking order theory’s hierarchy. Cash flow’s influence towards fixed asset investment is more significant than debt issuance’s, and debt issuance’s influence is stronger than equity issuance. This points out that corporate’s fixed asset investment is more sensitive towards cash flow (internal fund) compared to debt issuance (external fund), and so is debt issuance is more sensitive compared to equity issuance. With all that in mind, it is concluded that manufacturing company in Indonesia follows pecking order theory in terms of financing decision, which uses internal fund at first then started to use external fund if deemed necessary.

Countercyclical Bank Equity Issuance

Over the period 1980–2012, large U.S. commercial banks raise and retain less equity during credit expansions, which amplifies their leverage. The decrease in equity issuance is large relative to subsequent banking losses. I consider a variety of explanations for why banks resist raising equity and find evidence consistent with the diminishment of creditor market discipline due to government guarantees. I test this explanation by analyzing the removal of government guarantees to German Landesbank creditors and find that creditor market discipline and equity issuance increase. These findings help explain why banks resist raising equity, making financial distress more likely. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.