Working Papers

Private Investments in Public Equity: Discount for Lack of Marketability and Fair-Value Hypothesis

Published:

Work in progress (with A. Bernardo, I. Welch)

Working paper will be posted soon.

Abstract: The pricing of illiquidity (due to lack of marketability) is a contentious issue in Private Investments in Public Equity (PIPEs). We exploit the 2008 amendment to Rule 144(k) to estimate the effect of the shortening of the mandatory holding period on the discount for lack of marketability (DLOM). The annualized inferred DLOM is 3-4%. The DLOM can be larger when marketability is a greater concern. Our paper also contributes to the PIPE performance puzzle (Hertzel et al., 2002). While non-participating investors in PIPE companies incur significant losses post-PIPE, participating investors purchasing stock privately at a discount earn a zero-abnormal return over the expected illiquidity period. Our results support the hypothesis that PIPE investors are able to negotiate discounts commensurate with the expected underperformance of PIPEs companies.

The Economics of Law Enforcement: Quasi-Experimental Evidence from Corporate Takeover Law in Europe

Published:

R&R at Journal of Corporate Finance (with G. Dissanaike, W. Drobetz, J. Rocholl)

Nominated for best paper award (Financial Management Association)

Abstract: This paper examines the impact of takeover law enforcement on corporate acquisitions. We use the European Takeover Directive as a natural experiment, which harmonizes takeover law across countries, while leaving its enforcement to the discretion of individual countries. We exploit this heterogeneity in enforcement quality across countries in a difference-in-differences-in-differences model, while employing an overall inductive research approach, following the recommendation in Karpoff and Whittry (2018). We find that acquirer returns increase in countries with changes in takeover law, driven by improved target selection and lower cost of financing. The increase in acquirer returns is lower in weak enforcement jurisdictions, which we identify by developing a novel Takeover Law Enforcement Index (TLEI). The findings show that takeover law can mitigate agency conflicts, but its true value depends on its enforcement. Our results are robust to a number of robustness tests.