经济管理论文.pdf

Copyright2010bySergeyChernenkoC.FritzFoleyandRobinGreenwoodWorkingpapersareindraft.Thisworkingpaperisdistributedforpurposesofcommentanddiscussiononly.Itmaynotbereproducedwithoutpermissionofthecopyrightholder.Copiesofworkingpapersareavailablefromtheauthor.AgencyCostsMispricingandOwnershipStructureSergeyChernenkoC.FritzFoleyRobinGreenwoodWorkingPaper10-094NBERWORKINGPAPERSERIESAGENCYCOSTSMISPRICINGANDOWNERSHIPSTRUCTURESergeyChernenkoC.FritzFoleyRobinGreenwoodWorkingPaper15910http:papersw15910NATIONALBUREAUOFECONOMICRESEARCH1050MassachusettsAvenueCambridgeMA02138April2010WethankMalcolmBakerMihirDesaiMasakoEgawaAlpErcilYasushiHamaoSamHansonNaokiKamiyamaDavidMatsaDavidScharfsteinAndreiShleiferJeremySteinKenjiWadaLucyWhiteandseminarparticipantsatGeorgetownHarvardIESEtheNBERandWashingtonUniversityinSt.Louisforhelpfulcomments.WealsothankJimQuinnandSonyaLaiforresearchassistanceandMasakoEgawaAlpErcilLydiaPetersenNaokiKamiyamaDaiwaInstituteofResearchLtd.ToyoKeizaiInc.andtheSandraAnnMoreilliPacific-BasinCapitalMarketsResearchCenterforhelpassemblingdata.TheDivisionofResearchatHarvardBusinessSchoolprovidedgenerousfunding.TheviewsexpressedhereinarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheNationalBureauofEconomicResearch.2010bySergeyChernenkoC.FritzFoleyandRobinGreenwood.Allrightsreserved.Shortsectionsoftextnottoexceedtwoparagraphsmaybequotedwithoutexplicitpermissionprovidedthatfullcreditincludingnoticeisgiventothesource.AgencyCostsMispricingandOwnershipStructureSergeyChernenkoC.FritzFoleyandRobinGreenwoodNBERWorkingPaperNo.15910April2010JELNo.G14G3G32K22ABSTRACTStandardtheoriesofcorporateownershipassumethatbecausemarketsareefficientinsidersultimatelybearagencycostsandthereforehaveastrongincentivetominimizeconflictsofinterestwithoutsideinvestors.Weshowthatifequityisovervaluedhowevermispricingoffsetsagencycostsandcaninduceacontrollingshareholdertolistequity.Highervaluationssupportlistingsassociatedwithgreateragencycosts.WetestthepredictionsthatfollowfromthisideaonasampleofpubliclylistedcorporatesubsidiariesinJapan.Whenthereisgreaterscopeforexpropriationbytheparentfirmminorityshareholdersfarepoorlyafterlisting.Parentfirmsoftenrepurchasesubsidiariesatlargediscountstovaluationsatthetimeoflistingandexperiencepositiveabnormalreturnswhenrepurchasesareannounced.SergeyChernenkoHarvardBusinessSchoolBakerLibrary220ASoldiersFieldBostonMA02163C.FritzFoleyHarvardBusinessSchoolSoldiersFieldBostonMA02163andNBERRobinGreenwoodHarvardBusinessSchoolBakerLibrary267SoldiersFieldBostonMA02163andNBER1I.IntroductionAlargeliteratureinfinanceandeconomicssuggeststhatcorporateownershipandcapitalstructuredecisionsreflectattemptstomitigateagencyproblemsbetweenvariousstakeholders.Acommonideaisthatcorporateownershipissettomaximizefirmvalueaccountingforpotentialconflictsofinterestbetweenacontrollingshareholderandminorityinvestors.FollowingJensenandMeckling(1976)thisliteratureassumesthatmarketsareefficientwhichmeansthatminorityinvestorsanticipateandpricethefullextentofagencyproblemsandmoregenerallyunbiasedestimatesofthecashflowstheywillreceive.Oneimplicationisthatbecauseminorityinvestorsrequireafairreturnontheircapitalcontrollingshareholdersultimatelybearallagencycoststhattheycreate.Thegreateristheopportunityforthecontrollingshareholdertotakeadvantageofminorityinvestorsthemoreexpensiveitisforhimtoraiseoutsidecapital.UnderwhatcircumstancesthendofirmsaccesscapitalmarketswhenthepotentialforagencycostsishighTheprevailingviewsummarizedbyShleiferandWolfenzon(2002)andMorckWolfenzonandYeung(2005)isthatcontrollingshareholderssellsharestooutsidersonlywheninternalcapitalisinadequatetofundattractiveinvestmentopportunities.1Thispaperproposesanewexplanationbasedonstockmarketmispricingforwhyfirmswithacontrollingshareholderraiseoutsideequityevenwhentheycannotcommitnottoexpropriateminorityshareholders.Ourmainideaisthatthecontrollingshareholdertakesadvantageofstockmarketmispricingtooffsettheburdenofagencycosts.Totheextentthatagencycostsaredeadweightinsteadofdistributionaltransfersmispricingfacilitatesthecreationofinefficientownershipstructures.1SeeAlmeidaandWolfenzon(2006)foratheoreticaltreatmentofthismotivation.Othermotivestosellequitytooutsidersinthepresenceofagencycostsmightincludearisk-aversecontrollingshareholdersdesiretodiversifybenefitsfromlearningthemarketvalueofcertainoperations(PerottiandRossetto(2007)andgainsfromthepoliticalpowerthatcanaccompanycontrolofalargebusinessgroup(MorckWolfenzonandYeung(2005).2Whiletheroleofmarketefficiencyincorporatefinancehasattractedconsiderableresearchattentiontheinteractionofstockmarketmispricingwithagencyproblemsisnotwellunderstood.2TomotivateourempiricalworkwepresentasimpleextensionofthestandardagencymodelofJensenandMeckling(1976)thatallowsispricing.Thisextensiongeneratessomebasicpredictionsabouttheinteractionofagencycostsownershipstructureandstockmarketmispricing.WetestthesepredictionsempiricallyonasampleofsubsidiarylistingsinJapan.Wemodelacontrollingshareholderwhoconsiderssellingequityinapartofhisoperations.Thisshareholdercandivertresourcesfromtheoperationsforhisownprivatebenefitbutindoingsohebearscoststhatdependoninvestorprotectionandhisabilitytoconcealdiversion.Ifmarketsareefficientoutsidersanticipatediversionandpricetheequityclaimsaccordingly.Absentotherconsiderationsthecontrollingshareholderchoosestoretainfullownershipotherwisehewouldbeartheagencycostswithoutreceivinganybenefits.Theoutcomeisquitedifferentifthereismispricing.Inthiscasethecontrollingshareholdertradesoffthebenefitofsellingovervaluedequityagainsttheagencycostshewouldincurafterlisting.Thegreateristhemispricingthemorethecontrollingshareholderwantstosellandthusthemoreseverearethesubsequentagencyproblems.Forevidencetosupporttheseideasweanalyzeasampleof431publiclylistedsubsidiariesinJapaninwhichtheoriginalcorporateownerretainseffectivecontrolafterlisting.Thisempiricalsettinghasanumberofadvantages.CapitalmarketsarewelldevelopedinJapanbutminorityshareholderrightsareweakespeciallywhenitcomestopolicingself-dealing2ForexampleinGrahamandHarveys(2001)surveyofChiefFinancialOfficers(CFOs)managersclaimtotrytotimethemarketwhendecidingtoissueequity.AndRitter(1991)andLoughranandRitter(1995)amongothersdocumentlowaveragereturnsfollowinginitialpublicofferings(IPOs)andseasonedequityofferings(SEOs)suggestingthatmanagersattemptstotimethemarketaresuccessful.3transactions.Byretainingeffectivecontroloftheirsubsidiariesafterlistingparentfirmsthereforeleaveopenthepossibilityoftakingadvantageofminorityshareholders.Anadditionaladvantageofthissettingisthatparentfirmsinoursampledonotappeartobefinanciallyconstrainedlendingmorecredencetoexplanationsrelatedtostockmarketmispricing.FoleyGreenwoodandQuinn(2008)provideacasestudyofoneoftheselistingsNECElectronics(NECE)thesemiconductorsubsidiaryofJapaneseelectronicsconglomerateNEC.Followingitslistingin2003NECEincurredexcessivelyhighcapitalexpendituresandresearchanddevelopmentexpensestodevelopmicrochipsusedinNECsphonesandchargeditsparentlowtransferprices.NECEsstockunderperedrelativetothemarketandtotheparentfirm.TheperanceofNECEisrepresentative:parentfirmslistsubsidiarieswhenmarketandindustryvaluationsarehighandoverthefollowingtwoyearsaveragecumulativesubsidiaryreturnsare-8.74%whileaveragecumulativeparentreturnsare2.64%.AlthoughFoleyGreenwoodandQuinn(2008)presentspecificevidenceofagencyproblemsatNECEmoregenerallydiversionandagencycostsaredifficulttoobservedirectly.Thereforeourlargesampletestsarebasedonpredictionsconcerningtherelationbetweenthecharacteristicsoflistedfirmsandtheirsubsequentperance.Ourfirstpredictionisthatsubsidiariesinwhichthecontrollingshareholdersellsalargershareofequityshouldhavelowerstockmarketreturnsthanotherfirmsfollowingtheirlisting.BurkartGrombandPanunzi(1998)andLaPortaLopez-de-SilanesShleiferandVishny(2002)explainthattheincentivetodivertresourcesfromminorityshareholdersisparticularlystrongwhenalargeshareholderretainseffectivecontrolbutlimitedcashflowrights.Equitymustbeparticularlyovervaluedtoinducethecontrollingshareholdertoincurthelargeagencycosts.Thispredictionholdsinourdata4subsidiariesinwhichtheparentfirmmaintainsaminorityownershipstakethatexceeds20%underpersignificantlypostlisting.Oursecondpredictionexploitscross-sectionalvariationintheex-antescopeforagencyproblems.Listingswithgreaterex-antescopeforagencyproblemsshouldoccurwhenequityismoreovervalued.Intheseinstancesthecontrollingshareholdercanbeexpectedtodivertmoreresourcesfromminorityshareholdersandthusrequireshigherex-antuationstooffsetthecostsofdiversion.Inourdataweidentifysubsidiarieswhichhaveasalesrelationshipwiththeparentfirmasbeingparticularlypronetoagencyproblems.BecausetransferpricingregulationsinJapanareweakparentfirmscanusetransferpricingtodivertresourcesfromsubsidiaries.Overtwoyearsafterlistingthesesubsidiariesearnmonthlyrisk-adjustedreturnsof-71basispoints.Ourlastpredictionrelatestotheactionsoftheparentcompanyaftermispricinghasreverted.Sinceagencycostssuchasthecostsofcoveringupdiversionarelikelytoberecurringoncemispricinghasrevertedtheparentcompanyhasastrongincentivetorepurchaseitslistedsubsidiariesandtherebyeliminatetheagencycosts.Inourdataapproximatelyaquarterofthesubsidiarieslistedduringthesampleperiodarerepurchasedbytheirparentfirmsandtypicallyatasignificantdiscounttothuationsatthetimeoflisting.Themedianbuy-and-holdreturnearnedbyastockholderofarepurchasedsubsidiaryfromthebeginningofthemonthfollowinglistingtotherepurchasedateis-41.5%.Whenrepurchasesareannouncedboththeacquiringparentandthetargetsubsidiaryexperiencepositiveabnormalreturns.Acquiringparentreturnsaverageabout18%ofthemarketcapitalizationofrepurchasedsubsidiariessuggestingthatparentfirmscapturemanyofthegainsfromeliminatingownershipstructuresthatarepronetoagencyproblems.Insummarystockmarketmispricingfacilitatesthecreationofownership5structurespronetoagencyproblemsandthesestructuresareoftendismantledoncepricescorrect.Inourdiscussionsofarwehavebeensilentonthesourceofstockmarketmispricing.Aninterestingpossibilitytoconsideristhatthemispricingitselfcomesfrominvestorsunderestimatingthefullextentofagencyproblems.Suchaninterpretationwouldbeconsistentwithpreviousevidencethatinvestorssometimesoverlookagencyproblems.CainLoewensteinandMoore(2005)forexampleshowthatdecisionmakerstendtoignoreconflictsofinterestevenwhensuchconflictsareprominentlydisclosed.AndPerkinsMorckandYeung(2008)showthatjointventuresbetweenBraziliantelecommunicationsfirmsandforeignpartnersaremorelikelytofailiftheforeignpartnersarefromcountrieswithfewbusinessgroupssuggestingthatthesepartnersunderestimatetheagencyproblemsfromdealingwithfirmsthatarepartofbusinessgroups.MalmendierandShanthikumar(2007)suggestthatretailinvestorsarenaveregardingincentives.3Ourfindingsarerelatedtoanextensiveliteraturedocumentingexpropriationofminorityshareholdersindifferentcountries.BertrandMehtaandMullainathan(2002)findevidenceoftunnelingwithinIndianbusinessgroupstructureswhileBaeKangandKim(2002)andBaekKangandLee(2006)illustratehowgrouprelationshipsallowinsiderstousemergersandacquisitionsaswellassecurityissuancetobenefitcontrollingshareholders.ClaessensDjankovFanandLang(2002)andLaPortaLopez-de-SilanesShleiferandVishny(2002)showthatcorporatuationsarelowerwhenminorityshareholderprotectionisweaker.Thesepapersdonothoweveranalyzereturnsfollowinglistingortestwhetheragencyproblemsarefully3Regulatorsoftenexpressconcernthatinvestorswillnotbeabletounderstandconflictsofinterestevenifthereisdisclosure.ConsiderforexampletherecentdecisionoftheSecuritiesandFuturesCommissionofHongKongtoallowsharesofUnitedCompanyRUSALtobelistedontheHongKongStockExchange.Theregulatorpreventedretailinvestorsfromparticipatingdespitetherisksbeingprominentlydisclosedinathousand-pageprospectus.6anticipatedandpricedatthetimeoflisting.OurfindingsarealsorelatedtoresearchonequitycarveoutsrecentlysurveyedbyEckboandThorburn(2008).4AlsorelatedisAtanasovBooneandHaushalter(forthcoming)whoconsiderthepossibilitythatparentfirmsintheU.S.behaveopportunisticallytowardtheirpubliclylistedsubsidiariesandshowthatsuchsubsidiariestradeatadiscountrelativetotheirpeers.Thenextsectiondevelopsourmainpredictions.SectionIIIprovidesabriefbackgroundontheprotectionofminorityshareholdersunderJapaneselawwhilesectionIVdescribesourdata.SectionVanalyzesthuationsandperanceofsubsidiarylistings.SectionVIlooksatwhathappenstotheownershipofsubsidiariesfollowingtheirlisting.SectionVIIconcludes.II.StockmarketmispricingandownershipstructureWedrawourmainpredictionsfromasimpleextensionofthestandardagencymodelinwhichacontrollingshareholderdecidestosellafractionoftheequityclaimsonsomeassetstodispersedoutsideinvestors.WedrawonJensenandMeckling(1976)LaPortaLopez-de-SilanesShleiferandVishny(2002)andShleiferandWolfenzon(2002)whoexploreoptimalownershipstructureinsettingswherethereisscopeforexpropriationofminorityshareholderspostlisting.Weintroducethepossibilitythatequityismisvaluedandexploretheinteractionofagencycostsownershipstructureandstockmarketmispricing.Forstarknessweconsiderafirmthatdoesnotfacefinancialconstraints.4Inexplainingcarveoutsresearchershaveconsideredhypothesesrelatedtoincreasesincorporatefocus(Vijh(2002)obtainingfinancing(SchipperandSmith(1986)addressinginationasymmetries(Nanda(1991)andSlovinandShuska(1997)andbeginningtheprocessoffirmrestructuring(KleinRosenfeldandBeranek(1991)andPerottiandRossetto(2007).7BasicsetupTherearetwoperiods.Attime0acontrollingshareholderownsallequityinafirmthatwillgenerate$1ofcashflowinperiod1.Thecontrollingshareholderconsiderssellingfractionoffirmequitytodispersedoutsideinvestors.Thefirmgeneratesgrosscashflowof$1irrespectiveofwhetherthecontrollingshareholderraisesexternalcapital.Oncetheequityhasbeenlistedanagencyproblemarisesthecontrollingshareholderpreferstodivertcashflowtohimselfinsteadofreceivingonlyhisproratashare.Suchdiversioncanpotentiallytakemanysincludingtransferpricinginefficientperkconsumptionandoutrightstealing.Divertingfractionofcashflowhowevercoststhecontrollingshareholder()2Ck=.Thesecostsincludethecostofcoveringupdiversionandtheprobabilityofbeingcaughtandtheassociatedpunishment.5Followingmuchoftheliterature(e.g.ShleiferandWolfenzon(2002)weassumethatdiversioncostsareconvexinreflectingthefactthatcoverupbecomesincreasinglycostlyandtheprobabilityofbeingcaughtincreasesasmorediversiontakesplace.Parameterkcanbethoughtofasameasureofshareholderprotectionorastheinverseoftheex-antescopeforagencyproblems.Whenkislowshareholderprotectionisweakormoregenerallyitiseasierforthecontrollingshareholdertodivertresourcesandthereismorescopeforagencyproblems.Thetimingofthedecisionsisasfollows.Inperiod0thecontrollingshareholderchoosesfractionofthefirmtoselltothepublicatpricePpershare.Inperiod1thefirmproduces$1ofcashflowthecontrollingshareholderdivertsfractionofthiscashflowandtheremaining1dollarsofcashflowaredistributedprorata.5Itmakesnodifferencewhetherthecontrollingshareholderbearsthesecostsorsharesthemwiththeminorityinvestors.Inequilibriumhemustbearthemanyway.8Inperiod1thecontrollingshareholderdivertstomaximize()()2|max11.k+(1)Thefirsttermishisproratashareofthepost-diversioncashflowthesecondtermistheamountdivertedandthelasttermisthecostofdiversion.Differentiatingyieldsthesolution2k=(2)whichreflectsthestandardintuitionthattheloweristhecontrollingshareholdersshareofcashflowrights()1thestrongerishisincentivetodivert.Whendiversioniscostlyordifficult(i.e.whenkishigh)theincentivetodivertisweak.Whenthecontrollingshareholderdecideshowmuchequitytosellinperiod0hemaximizestotalproceedstakingintoaccountboththedirectproceedsfromsellingequityattheIPOandthebenefitsofdiversion()()2max11.2kPstk+=(3)Inthestandardrationalexpectationsframeworkthepriceofequitywouldbesettoreflectthelevelofdiversioni.e.P=1-.Weallowstockpricestobemisvaluedbyanerrorterm1P=+(4)Wedonottakeastandonwherethemispricingcomesfromorwhatspecificerrorsorbiasescauseinvestorstomisvaluethefirm.Forourpurposeitdoesnotmatter.Inprinciplecould9representmispricingatthemarketlevelbroadinvestorsentimentforaparticularindustryortypeoffirmoritcouldsignifyinvestorswillingnesstooverlookagencyconcerns.6Substituting(2)and(4)into(3)anddifferentiatingyields2k=(5)Intuitivelythecontrollingshareholdertradesoffthebenefitofsellingovervaluedequityagainsttheagencycosts.Ifshareholderprotectionisstrongorkishighverylittleovervaluationisrequiredtomotivatethecontrollingshareholdertosellshares.Withlittlescopeforagencyproblemsthecontrollingshareholdercantakeadvantageofthemispricingbysellingalargefractionofhisfirmdoingsodoesnotgeneratehighlevelsofdiversionoragencycosts.Whenkislowontheotherhandagencycostsareanimportantdeterrenttosellingequity.WhatisthenetbenefitfromsellingovervaluedsharesSimplealgebrashowsthatbyselling2k=sharestooutsideinvestorsthecontrollingshareholdergets2kmorethanifhedidnotsellanysharesatallandretainedfullcontrol.Wecanalsoseethatinequilibriumdiversionequalsmispricing.Intuitivelybyoffsettingtheagencycostsmispricingcreatesscopeforexpropriation.Andthemorediversionthatisexpectedtotakeplacethehigheristhemispricingrequiredtoinducethecontrollingshareholdertolist.Assumingthatpricesultimatelyreverttotherationalexpectationslevel1P=postlistingpercentagereturnsrealizedbyminorityinvestorsaresimply1111=+.6Ourapproachissimilartoanincreasingnumberofpapersincorporatefinancethattakestockmarketmispricingasgivenanduseittoderiveconsequencesforcorporatebehavior.SeeStein(1996)andShleiferandVishny(2003)forexamples.Likethesepapersourfocusisontheconsequencesofmispricing.Wedonotehoweverthatmispricingseemssustainablebyvirtueofsubsidiarieslowmarketcapitalizationsandlowfloat.LowfloatiscorrelatedwithshortsalesconstraintsinU.S.dataasindicatedinDAvolio(2002).10TheimplicationsofmispricingforoverallwelfarehingeonthenatureoftheagencycostsC().Anaturalassumptionisthatcostsaredeadweightincurredasthecontrollingshareholdertakesactionstocoveruptheresourcediversion.InefficiencieswouldalsoariseifagencycostsdistortedinvestmentorR&Ddecisions.Ifthecostsaredeadweightthesociallyoptimallevelofequitysoldtominorityshareholdersiszero