|[June 12, 2014]
Two Groundbreaking Academic Mergers & Acquisitions Studies Win IRRC Institute Investor Research Award at Millstein Governance Forum
NEW YORK --(Business Wire)--
Two academic research papers that promise to spark new scrutiny of
corporate actions such as mergers and acquisitions have won the
Responsibility Research Center Institute (IRRCi) annual investor
research competition that focuses on the interaction of the real economy
with investment theory. One research paper documents that informed
trading of equity options prior to takeover announcements is more
pervasive than would be expected, while the other examines managers'
incentives to "play it safe" with actions such as buying "cash cow"
companies in diversifying industries.
"Both research papers have the potential to change how we look at key
aspects of corporate transactions such as mergers and acquisitions,"
said IRRCi executive director Jon Lukomnik. "One paper indicates that we
may have a significant and systemic insider trading problem. The other
winning research paper provides empirical evidence that managers often
destroy value through diversifying acquisitions to insulate themselves
from difficult financial situations," he explained.
Lukomnik is set to recognize the following winners at the Columbia Law
School 2014 Millstein
Governance Forum, The State of Corporate Governance, at the Gala
Dinner scheduled for June 12, 2014, in New York City. The winning
research teams will be presented with a $10,000 award for each paper.
Informed Options Trading prior to M&A Announcements: Insider
Trading? by Patrick
Augustin, Assistant Professor of Finance, McGill University's
Desautels Faculty of Management; Menachem
Brenner, Research Professor of Finance at New York University
Stern School of Business; and Marti
G. Subrahmanyam, Charles E. Merrill Professor of Finance,
Economics and International Business, New York University Stern School
of Business. Download the research at http://irrcinstitute.org/projects.php?project=70.
Playing it Safe? Managerial Preferences, Risk, and Agency
Conflicts by Todd
A. Gormley, Assistant Professor of Finance at The Wharton School
at the University of Pennsylvania; and David
Matsa, Associate Professor of Finance at the Kellogg School of
Management at Northwestern University. Download the research at http://irrcinstitute.org/projects.php?project=71.
"We became intrigued by reports of a number of illegal insider trading
cases in options ahead of takeover announcements, in particular the
leveraged buyout of Heinz by Warren Buffet and 3G Capital," said award
winner Patrick Augustin. "Hence, we set out to investigate whether
instances of informed trading in options occur systematically or whether
they were just random bets. The statistical evidence we present is
consistent with informed trading strategies, and is too strong to be
dismissed as just random speculation. Our findings likely will be highly
useful to regulators, firms and investors in understanding where and how
informed investors trade," Augustin added.
Award winner David Matsa said, "Our research finds that all too often,
corporate executives of struggling firms shy away from taking the risks
necessary to maximize shareholders' return. When not disciplined by the
threat of a hostile takeover, distressed firms are more likely to hoard
cash and acquire firms in unrelated industries. In these situations, the
traditional solutions to managerial agency conflicts are
counterproductive because high corporate debt levels and large
managerial equity stakes only exacerbate managers' tendency to play it
"The Millstein Center is very pleased to be affiliated with and to host
the announcement of the IRRC Institute Annual Investor Research Award.
The type of deep, provocative research that the IRRCi supports through
these awards is critical to the fields of corporate governance,
economics, and finance," said Ira
Millstein, co-chair of the Millstein Center for Global Markets and
Corporate Ownership at Columbia Law School.
The IRRCi Investor Research Award fills a vacuum by fostering critical
research that integrates investment theory and the real world economy.
Along with previous winning research, this year's winning academic
papers will be valuable tools for investors, policymakers, academia, and
other stakeholders in terms of rethinking assumptions, testing
conventional wisdom and helping to improve the investment landscape.
The following panel of renowned judges reviewed the submissions and
selected the two winning papers:
Mark Anson Chief Investment Officer, Acadia Investment Management
Collette Chilton Chief Investment Officer, Williams College
James Hawley Professor and Director of the Elfenworks Center for
Fiduciary Capitalism at St. Mary's College
Robert J. Jackson, Jr. Faculty Co-Director, Ira M. Millstein Center
for Global Markets and Corporate Governance and Associate Professor of
Law and Milton Handler Fellow at Columbia Law School
Erika Karp Founder and Chief Executive Officer, Cornerstone Capital
Bill Miller (News - Alert) Chairman, Chief Investment Officer & Portfolio Manager,
Legg Mason Capital Management
Nell Minow Co-founder and Board Member, GMI Ratings
Biographies of the judges are available here.
Information on past winners is available here.
More information about the award is available here.
Read the full body of IRRCi research here.
About The IRRC Institute
The IRRC Institute is a not-for-profit organization that provides
thought leadership at the intersection of corporate responsibility and
the informational needs of investors. More information is available at www.irrcinstitute.org.
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