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First Look at New Research and Ideas: July 25, 2017

Carmen Nobel

Banning protections on M&A deals...Effectively measuring the patient experience...Considering the efficacy of 'quadratic voting.'

Activist Board Members Increase Firm’s Market Value

by Carmen Nobel

Board members nominated by activist investors presumably have one primary goal: change the status quo. Does that agenda create or diminish value of the firm in the eyes of shareholders? New evidence offered by Harvard Business School professors Bo Becker, Daniel B. Bergstresser, and Guhan Subramanian suggests financial markets value a new approach. Key concepts include: Firms that would have been most affected by the Federally-proposed shareholder proxy access rule, based on institutional ownership, lost share price value on October 4, 2010. This finding suggests that financial markets place positive value on shareholders' access to the company's proxy statement. The loss in value was greatest at firms at which activist investors such as hedge fund managers, held significant stakes. Open for comment; 0 Comments.

Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge

by Bo Becker, Daniel B. Bergstresser & Guhan Subramanian

In August 2010, the Security and Exchange Commission announced a highly anticipated rule that would make it easier for investors to nominate new board members and get rid of existing ones. It allowed shareholders to have their board candidates included in the company's proxy materials--if those shareholders had owned at least 3 percent of the firm's shares for at least the prior three years. On October 4, the SEC unexpectedly and indefinitely postponed the implementation of that rule, pending the outcome of a lawsuit aimed at overturning it. This paper gauges the significance of the proxy access rule by measuring whether certain firms gained or lost market value on news of the delay. Research was conducted by Harvard Business School professors Bo Becker, Daniel Bergstresser, and Guhan Subramanian. Key concepts include: Firms that would have been most affected by the proxy access rule, based on institutional ownership, lost value on October 4, 2010, following the news of the rule's delay. This suggests that financial markets placed positive value on shareholders' access to the board. The loss in value was greatest at firms that had large positions held by activist investors. The paper's findings may help prove that the SEC has met the federal rule mandating that all proposed rules "will promote efficiency, competition, and capital formation." Closed for comment; 0 Comments.

The New Deal: Negotiauctions

by Julia Hanna

Whether negotiating to purchase a company or a house, dealmaking is becoming more complex. Harvard Business School professor Guhan Subramanian sees a new form arising, part negotiation, part auction. Call it the negotiauction. Here's how to play the game. Key concepts include: In a negotiauction, the rules are never perfectly pinned down, which creates both opportunities and challenges. The three common negotiauction moves are set-up, rearranging, and shut-down. Negotiauctions help in the current economic downturn by providing a more nuanced mechanism and better outcome for both parties. Closed for comment; 0 Comments.