In a corporation with many small owners, it may not pay any one of them to monitor the performance of the management We explore a model in which the presence of a large minority shareholder provides a partial solution to this free-rider problem The model sheds light on the following questions: Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up? How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm? Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences?

https://ecsocman.hse.ru/data/844/126/1231/shleifer_vishny_-_1986.pdf

Large Shareholders and Corporate Control

We investigate the determinants of capital structure choice by analyzing the financing decisions of public firms in the major industrialized countries. At an aggregate level, firm leverage is fairly similar across the G-7 countries. We find that factors identified by previous studies as important in determining the cross- section of capital structure in the U.S. affect firm leverage in other countries as well. However, a deeper examination of the U.S. and foreign evidence suggests that the theoretical underpinnings of the observed correlations are still largely unresolved.

What Do We Know About Capital Structure? Some Evidence from International Data

This paper analyzes the explanatory power of some of the recent theories of optimal capital structure. The study extends empirical work on capital structure theory in three ways. First, it examines a much broader set of capital structure theories, many of which have not previously been analyzed empirically. Second, since the theories have different empirical implications in regard to different types of debt instruments, the authors analyze measures of short-term, long-term, and convertible debt rather than an aggregate measure of total debt. Third, the study uses a factor-analytic technique that mitigates the measurement problems encountered when working with proxy variables.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.1988.tb02585.x

The Determinants of Capital Structure Choice

SEQUELS ARE RARELY AS good as the originals, so I approach this review of the market efficiency literature with trepidation. The task is thornier than it was 20 years ago, when work on efficiency was rather new. The literature is now so large that a full review is impossible, and is not attempted here. Instead, I discuss the work that I find most interesting, and I offer my views on what we have learned from the research on market efficiency.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.1991.tb04636.x

Efficient Capital Markets: II

We investigate the determinants of capital structure choice by analyzing the financing decisions of public firms in the major industrialized countries. At an aggregate level, firm leverage is fairly similar across the G-7 countries. We find that factors identified by previous studies as correlated in the cross-section with firm leverage in the United States, are similarly correlated in other countries as well. However, a deeper examination of the U.S. and foreign evidence suggests that the theoretical underpinnings of the observed correlations are still largely unresolved.

/pdf/what-do-we-know-about-capital-structure-some-evidence-from-1mj7ra2f2b.pdf

What Do We Know about Capital Structure? Some Evidence from International Data

ONE OF THE MOST contentious issues in the theory of finance during the past quarter century has been the theory of capital structure. The geneses of this controversy were the seminal contributions by Modigliani and Miller [18, 19]. The general academic view by the mid-1970s, although not a consensus, was that the optimal capital structure involves balancing the tax advantage of debt against the present value of bankruptcy costs. No sooner did this general view become prevalent in the profession than Miller [16] presented a new challenge by showing that under certain conditions the tax advantage of debt financing at the firm level is exactly offset by the tax disadvantage of debt at the personal level. Since then there has developed a burgeoning theoretical literature attempting to reconcile Miller's model with the balancing theory of optimal capital structure [e.g., DeAngelo and Masulis [5], Kim [12], and Modigliani [17]. The general result of this work is that if there are significant "leverage-related" costs, such as bankruptcy costs, agency costs of debt, and loss of non-debt tax shields, and if the income from equity is untaxed, then the marginal bondholder's tax rate will be less than the corporate rate and there will be a positive net tax advantage to corporate debt financing. The firm's optimal capital structure will involve the trade off between the tax advantage of debt and various leverage-related costs. The upshot of these extensions of Miller's model is the recognition that the existence of an optimal capital structure is essentially an empirical issue as to whether or not the various leverage-related costs are economically significant enough to influence the costs of corporate borrowing. The Miller model and its theoretical extensions have inspired several timeseries studies which provide evidence on the existence of leverage-related costs. Trczinka [28] reports that from examining differences in average yields between taxable corporate bonds and tax-exempt municipal bonds, one cannot reject the Miller hypothesis that the marginal bondholder's tax rate is not different from the corporate tax rate. However, Trczinka is careful to point out that this finding does not necessarily imply that there is no tax advantage of corporate debt if the personal tax rate on equity is positive. Indeed, Buser and Hess [1], using a longer time series of data and more sophisticated econometric techniques, estimate that the average effective personal tax rate on equity is statistically positive and is not of a trivial magnitude. More importantly, they document evidence that is consistent with the existence of significant leverage-related costs in the economy.

On the existence of an optimal capital structure: theory and evidence

Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms

https://deepblue.lib.umich.edu/bitstream/handle/2027.42/25256/0000699.pdf?sequence=1

THE RATIONALE BEHIND INTERFIRM TENDER OFFERS Information or Synergy

It is commonly believed that the interfirm cash tender offer is an attempt by the bidding firm to purchase the target shares and profit from their subsequent market appreciation. This belief is inconsistent with the available evidence. While acquiring firms earn a positive return from the tender offer, they do not realize a capital gain from the target shares that they purchase. In the 161 successful offers in this study, bidding firms paid target stockholdei-s an average premium of 49% for the shares they purchased. This premium is calculated relative to the closing price of a target share 2 months prior to the announceinent of the offer. The average appreciation of the target shares through I month subsequent to the execution of the offer was 36%, relative to this same benchmark. In sum, target This paper examines the nature of interfirm cash tender offers. The tender offer is viewed as a bid for the right to conitrol the resources of the target firm. A model based on this interpretation, efficient and competitive mar-kets, and rational expectations is developed and tested. The implications of this model are shown to be consistent with the following documented empirical facts concerning the average tender offer: the stockholders of both acquiring and acquired firms realize a significant capital gain; acquiring firms suffer a significant capital loss on the target shares they pul-chase; target stockholders realize a significant capital gain regardless of the outcome of the offer or whetheror not they tender their shar-es.

Interfirm Tender Offers and the Market for Corporate Control

The authors document significant sales by the insiders of firms filing bankruptcy petitions prior to the filing date. They also find that selling is more intense for top executives and officers and that insiders in general systematically sell stock before prices fall and buy stock after prices have fallen. Although this trading pattern may simply reflect an implicit compensation arrangement between insiders and stockholders, the significant sell-off does raise potential questions regarding managements' incentives to maximize shareholder wealth throughout the Chapter 11 process. Copyright 1997 by University of Chicago Press.

https://www.jstor.org/stable/10.1086/209715

Michael Bradley

Papers

On the existence of an optimal capital structure: theory and evidence

Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms

THE RATIONALE BEHIND INTERFIRM TENDER OFFERS Information or Synergy

Interfirm Tender Offers and the Market for Corporate Control

Corporate Bankruptcy and Insider Trading