1. Are owners redundant?
This project compares the behavior and performance of firms without owners to that of firms in the same industry that do have owners. Using a sample of all Norwegian banks over the period 1985-2002, the study compares listed commercial banks to ownerless savings banks in terms of how they choose their asset and liability structures and how they perform as economic entities. The findings are surprising, as ownerless firms are not outperformed by owned firms in terms of returns to capital invested. We think product market competition is a key to rationalizing our results.
2. Dividends and stakeholder conflicts
How can dividend policy reduce the potential conflict of interest between self-serving managers and the firm’s owner? A high dividend payout is one such mechanism to reduce agency costs, particularly when owners have low power relative to management. This study compares the dividend payout of Norwegian commercial banks to that of PCC banks (grunnfondsbanker) over roughly twenty years. Whereas owners have a 2/3 majority in commercial banks, they have a minority vote of ¼ in PCC banks. If dividend payout is used to mitigate the agency problem and hence reduce the cost of capital, one would expect PCC banks to have higher dividend payout than otherwise similar commercial banks. Our findings stromgly support this idea, which supports the idea that stakeholder power and divdend payments are substitutes
3. The risk and return of rejecting minority freezeout offers: Evidence from the courtroom
This project analyzes the population of minority freezeout cases handled by the courts in a regulatory regime that grants every minority stockholder the right to reject the freezeout offer and ask the court to value the nontendered minority stock. This setting allows us to observe directly the disciplining role of legal enforcement. We find that litigation is associated with high risk, but also with high expected returns. Since this risk is diversifiable, however, our findings suggest that rejected minority freezeout offers are considered underpriced by the court. Such large excess returns to litigation is particularly common when the majority stockholder has a dominating position in the firm a long time before the freezeout, when the firm is private, and when the case is small. This implies that majority stockholders systematically underestimate the enforcement of the law when the freezeout price is set. It also suggests that minority stockholders do not litigate excessively, despite our finding that they very seldom pay the direct costs of their litigation activity.
Completed projects
