Frederik P. Schlingemann

Bio: Frederik P. Schlingemann is an academic researcher from University of Pittsburgh. The author has contributed to research in topics: Shareholder & Market liquidity. The author has an hindex of 22, co-authored 55 publications receiving 7350 citations. Previous affiliations of Frederik P. Schlingemann include Erasmus University Rotterdam & Southern Methodist University.

Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave

Abstract: Acquiring-firm shareholders lost 12 cents at the announcement of acquisitions for every dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 16 cents per dollar spent Though the announcement losses to acquiring-firm shareholders in the 1980s are more than offset by gains to acquired-firm shareholders, the losses of bidders exceed the gains of targets from 1998 through 2001 by $134 billion The 1998-2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisition announcements by firms with extremely high valuations Without these announcements, the wealth of acquiring-firm shareholders would have increased The large losses are consistent with the existence of negative synergies from the acquisitions, but the size of the losses in relation to the consideration paid for the acquisitions is large enough that part of the losses most likely results from investors reassessing the standalone value of the bidders Firms that announce acquisitions with large dollar losses perform poorly afterwards

Wealth Destruction on a Massive Scale? A Study of Acquiring‐Firm Returns in the Recent Merger Wave

Abstract: Acquiring-firm shareholders lost 12 cents around acquisition announcements per dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 1.6 cents per dollar spent. The 1998 to 2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisitions with negative synergy gains by firms with extremely high valuations. Without these acquisitions, the wealth of acquiring-firm shareholders would have increased. Firms that make these acquisitions with large dollar losses perform poorly afterward. IN THIS PAPER, WE EXAMINE THE EXPERIENCE of acquiring-firm shareholders in the recent merger wave and compare it to their experience in the merger wave of the 1980s. Such an investigation is important because the recent merger wave is the largest by far in American history. It is associated with higher stock valuations, greater use of equity as a form of payment for transactions, and more takeover defenses in place than the merger wave of the 1980s.1 Though these differences suggest poorer returns for acquiring-firm shareholders, there are also several reasons why the acquiring-firm shareholders may have better returns. With the growth of options as a form of managerial compensation in the 1990s, managerial wealth is more closely tied to stock prices, presumably making management more conscious of the impact of acquisitions on the stock *Moeller is at the Babcock Graduate School of Management, Wake Forest University; Schlinge

Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions

Abstract: We provide empirical evidence on how cross-border acquisitions from the perspective of an US acquirer differ from domestic transactions based on stock and operating performance measures. For a sample of 4430 acquisitions between 1985 and 1995 and controlling for various factors we find that US firms who acquire cross-border targets relative to those that acquire domestic targets experience significantly lower announcement stock returns of approximately 1% and significantly lower changes in operating performance. Stock returns are negatively associated with an increase in both global and industrial diversification. Cross-border takeover activity has increased during the past decade and the observed difference in bidder gains is more pronounced for the latter half of the sample period. We find that bidder returns are positively related to takeover activity in the target country and to a legal system offering better shareholder rights. With the exception of the UK, the target country's degree of economic restrictiveness is negatively related to bidder returns.

Pay without Performance: The Unfulfilled Promise of Executive Compensation

Abstract: This book provides a detailed account of how structural flaws in corporate governance have enabled managers to influence their own pay and produced widespread distortions in pay arrangements. The book also examines how these flaws and distortions can best be addressed. Part I of the book (titled The Official View and its Limits) critically examines the arm's length contracting view, which underlies much of the academic research on executive compensation as well as the law's approach to it. We show that boards have not been operating at arm's length from the executives whose pay they set. While recent reforms can improve matters, they cannot be expected to eliminate significant deviations from arm's length contracting. We also show that the constraints imposed by market forces and shareholders' power to intervene are not tight enough to prevent such deviations. Part II of the book (titled Power and Pay) shows how an understanding of the role of managerial power can help explain executive compensation practices. We provide a framework for assessing whether pay arrangements are a product of managerial influence. We discuss managers' interest in camouflaging the amount and the performance-insensitivity of their pay. Applying our framework, we discuss how managerial influence can help explain, among other things, the evidence on the relationship between managerial pay and managerial power; the use of retirement benefits and other compensation arrangements to provide stealth compensation; and the ability of departing managers to obtain more than their contractual entitlement. Part III of the book (titled Decoupling Pay from Performance) examines how managerial influence has operated to reduce the performance-sensitivity of executive pay. Among other things, we examine the structure of non-equity compensation, the design of conventional option plans, the use of restricted stock grants, and managers' freedom to unload options and shares. Part IV of the book (titled Going Forward) discusses how executive compensation - and corporate governance more generally - can be improved. We examine the extent to which pay arrangements can be improved by adopting board process rules, imposing shareholder approval requirements, and making pay more transparent. We conclude that problems with compensation arrangements cannot be fully addressed without ensuring that directors focus on shareholder interests and operate at arm's length from the executives whose compensation they set. To achieve this result, we argue, it is not sufficient to make directors independent of executives as recent reforms has sought to do; it is also necessary to make directors dependent on shareholders by changing the legal arrangements that insulate boards from shareholders.