Managing Internal Equity and SEO

2020/2/9薛爽1ManagingInternalEquityandSEOCh132020/2/9薛爽2ChapterObjectiveTheequitymanagementperspectiveInternalcapitalmarkettheorySEOinfluenceandarrangementSEOmethodsandParadoxofrightsofferMkteffectofSEOannouncementNewissuespuzzle:long-termperformanceofSEOSomeinterestingresearchesonChineseSEOdiscussions2020/2/9薛爽3TheequitymanagementperspectivePrincipal-agencyproblem:managementprivatebenefitssuchasperksorslackoffSolutions:--dividendsorstockrepurchases--monitoring:colludebetweenauditorandmanagersuchasEnronandArthurAnderson--incentivecompensationAllsolutionsareimperfect2020/2/9薛爽4InternalcapitalMKTtheoryThetraditionalcapitalbudgetingparadigm--ifaprojectshouldinvest:positiveNPVrule--whattodowhenfacingbudgetinglimitation:selectthesetofferingthehighestTotalNPVLimitationsoftraditionalparadigm--whyiscapitalbudgetlimited?--whoandhowistheforecastofPVmade?--whataretherolesofheadquartersanddivisionmanagers2020/2/9薛爽5InternalcapitalMKT(ICM)theoryTheadvantagesofICM-avoidtheinfor.asymmetry-increasedmonitoringincentives-betterassetredeployabilityPeckingordertheoryInternalcapitalNewissueofequitydebt2020/2/9薛爽6InternalcapitalMKT(ICM)theory--peckingordertheorySmithCO.JonesCO.Truevaluecouldbehigher,say$120$120Bestcurrentestimate100100Truevaluecouldbelower,say8080Nowbothcompaniesneednewfundtoinvest.Smith’sfinancialmanagerthink:sellstockfor$100pershare?It’sworthatleast$120.Astockissuenowwouldhandafreegifttonewinvestors.Jones’smanagerwithadifferentmood:exportmktsareOKfornow,buthowarewefoingtocompetewiththosenewSiberianranches?Fortunatelythestockpricehasheldupprettywell-we’vehadsomegoodshort-runnewsforthepressandanalysts.Now’sthetimetoissuestock!2020/2/9薛爽7InternalcapitalMKT(ICM)theory--peckingordertheoryNowsupposetherearetwopressreleases:-SmithCO.willissue$120mil.of5-yearnotes.-JonesCO.willissue1.2mil.Newsharesandthecompanyexpectstoraise$120mil.What’sarationalinvestorlearnfromthis?-Smith’smanagerisoptimisticandJones’sispessimistic.-Jones’smanagerisstupidtothinkthatinvestorwouldpay$100.Theattempttosellstockshowsthatitmustbeworthless.What’stheresult?-bothwillissuedebt!SourcesandusesoffundinU.S.non-financialcorporations%88899091929394959697Internally818790112888886788985stock-26-27-14364-7-8-9-14debt454024-147821302030total1001001001001001001001001001002020/2/9薛爽9InternalcapitalMKT:--withinamultidivisionalfirmDecentralizedinfor.DivisionmakebudgetbasedonItsowninfo.Seniormanagersdeterminethecapitalallocation.BalancesomewhereInfor.asymmetryMeanstocontrolthisproblem:Expostaudit:efficientinamulti-periodmodelExanteaudit:costly2020/2/9薛爽10InternalcapitalMKT:--withinamultidivisionalfirmDivisionalrent-seeking:ScharfsteinandStein(2000)Thecross-subsidization:strongerdivisionssubsidizeweakones:ScharfsteinandStein(2000).ShinandStulz(1998):investmentinagivensegmentofadiversifiedfirmissensitivetoCFofthefirm’sothersegmentsandislesssensitivetoitsownCFthanisasingle-segmentfirm.2020/2/9薛爽11InternalcapitalMKTIfexternalfinancingMKTisdeveloped,firmstendtobefocus;otherwise,tendtobediversified.2020/2/9薛爽12SEOinfantstardogcashcowInvestmentopportunitiesProfitabilityofexistingbusinessIfinternalCFisInsufficient,SEOmayhaveapositivereactIfSEO,MKTmayhaveanegativereact2020/2/9薛爽13SEOWhat’stheinfluenceofSEO?-ownershipstructure-capitalstructure-interestshiftbetweenoldandnewshareholders2020/2/9薛爽14SEOUnderwritemethods-Firmcommitment-BesteffortIssuingmethods-traditional-shelfregistration:matchingwithcapitalexpenditures;timingthebestmarketcondition;increasingthebargainingabilitywithunderwriterRestrictiverequestsforcandidate;Alargenegativemktreaction2020/2/9薛爽15SEOMethodsofSEO-privateplacement;Wruck(1989)issuersaresmaller;arelativelybiggerdiscount;apositiveMKTreactionTheownershipstructurehypothesis:anticipatechangeofmanagerialperformanceTheinfor.hypothesis:assessmentofinvestmentopportunitiesHertzelandSmith(1993)2020/2/9薛爽16SEOMethodsofSEO-stockandstockoptiongrant,employeestockownershipplans(ESOP)anddividendreinvestmentplans(DRIPs)-Rightsofferinghaveadeeplynegativemarketreaction-generalpublicofferingIncentive;+reactionTaxadvantages;+reactionTakeoverdefense:-reaction2020/2/9薛爽17MethodsofSEOU.S.A.--1993-1955:morethan50%firmsselectedrightsoffering.--After1960s,generalpublicofferingdominating;1963-1981,onlylessthan5%firmsselectedrightsoffering--after1982,norightsofferingJapan--before1976,rightsoffering:50%--only6.3%financingthroughrightsofferingInEuropeandAsia:themainfinancingchannel各国股权再融资方式比较国家配股增发新股美国60年代以前占主导地位60-70年代，迅速减少80年代以后，消失60年代开始占主导地位日本1976年以前占主导地位1976-1992年逐步减少1992年以后只占很小比例目前占主导地位英国1986年以前配股是唯一的股权再融资方式1986年以后，占主导地位1986年以后居次要地位法国居于主导地位，90%以上的公司采用配股允许使用，处于次要地位瑞士居于主导地位允许使用，处于次要地位德国居于主导地位挪威居于主导地位允许使用，处于次要地位瑞典居于主导地位加拿大居于主导地位允许使用，处于次要地位韩国居于主导地位允许使用，处于次要地位中国1997年以前为唯一股权再融资方式1998年以后仍居于主导地位允许使用，处于次要地位各国股权再融资方式比较2020/2/9薛爽19SEO:thecostofissuingAdverseselectioncosts:negativemktreactionWarrantstounderwriter:greenshoesoptionUnderwriterspread:apercentageofofferingproceedsfees(rightsoffering)fees(SEO)Paradoxofrightsoffer2020/2/9薛爽20Paradoxofrightso