This recent Wall Street Journal Weaker IPOs May Be Good for Stocks: (note: online subscription required) highlights an interesting pattern - that overall stock market returns are weaker in the time period following hot IPO markets and stronger following weak IPO markets.
This makes sense if you believe in an "overvaluation" story - IPOs are more attractive when valuations are high. So, if markets are getting overheated, subsequent returns are likely to be low. I'd suspect that there's a similar pattern for seasoned equity issues (SEOs), which might even be stronger - it's much easier to time an SEO than an IPO.
"Which merger deals draw lawsuits?"
Lawyers, like everyone else, mazimize utility. In their case, mazimized utility often equates directly to maximized $$ (insert joke here). Overlawyered links to an article in Forbes magazine that asks the question "Which merger deals draw lawsuits?". The not so surprising answer is:
"The ones that are sure to generate big fees, of course." University of Arizona law professor Elliott Weiss and New York University economist Lawrence White studied lawsuits filed in Delaware Chancery Court over mergers of Delaware companies between 1999 and 2001. Of 564 mergers, 104 attracted lawsuits, and there was a pattern: the deals sued over "were among the largest, often involved all-cash offers and in more than half the cases the acquiring company owned stock in the firm it was buying." As it happens, "Delaware law subjects cash takeovers and buyouts by controlling shareholders to much tougher scrutiny than most stock-swap mergers" and in such deals acquirers frequently anticipate negotiations with independent directors, and thus enter a somewhat lower initial bid to leave scope for concessions. It is common, however, for the lawyers who sue to wait for the deal price to rise and then claim credit for having made that happen, thus entitling them to compensation: "according to the study, they sought and got fees averaging $1,800 an hour in the cases where the price rose." The authors "conclude that in many cases lawyers are 'exploiting their "license to litigate" primarily to enrich themselves.'" (Daniel Fisher, "Free Riders", Feb. 14).The Weiss and White paper can be downloaded free from the SSRN here. Here's a few joice parts from the abstract:
...We offer two broad alternative hypotheses as to what drives merger-related class actions in Delaware: a "shareholder champion" hypothesis, and a "self-interested litigator" hypothesis...The paper's pretty substantal and dense, but worth a look.
...The pattern that we observe is redolent of a pattern of opportunistic filings, of a lawyer-driven process rather than a true client-driven process: systematic behavior with respect to which mergers were challenged; early and frequent complaints filed; a very high percentage of dismissed cases never reached a judgment on the merits; the absence of a single case that has been decided in favor of the plaintiffs on the merits; settlements tending to reflect free riding by plaintiffs' attorneys; plaintiffs' attorneys failing to challenge special negotiating committees' decisions or competing offers; attorneys with "real" clients and from outside the "traditional" Delaware plaintiffs' bar who were far more vigorous in their litigation efforts; no settlements overturned by the Delaware courts; plaintiffs' attorneys' fee awards in settlements usually paid by defendants and not out of common funds, and largely unchallenged; and plaintiffs' attorneys' fees representing a strikingly low percentage of claimed recoveries (but attractive on an hourly basis), which may well indicate that the attorneys added little value to the recoveries.
School Mistakes Huge Burrito for a Weapon - Yahoo! News
And now, for something completely different:
It's got to be tough for comedy writers. Like Malcolm Muggeridge (British satirist and Theologian) once said, "You work so hard to put real people into ridiculous situations in your pieces, and then they go and do something far more ridiculous than you could ever have imagined"
"CLOVIS, N.M. - A call about a possible weapon at a middle schoolclick here for the whole article.
prompted police to put armed officers on rooftops, close nearby streets
and lock down the school. All over a giant burrito."Someone called authorities Thursday after seeing a boy carrying something long and wrapped into Marshall Junior High.
The drama ended two hours later when the suspicious item was identified as a 30-inch burrito filled with steak, guacamole, lettuce, salsa and jalapenos and wrapped inside tin foil and a white T-shirt.
It's got to be tough for comedy writers. Like Malcolm Muggeridge (British satirist and Theologian) once said, "You work so hard to put real people into ridiculous situations in your pieces, and then they go and do something far more ridiculous than you could ever have imagined"
Economics for the Citizen (Part 1) by Walter Williams -- Capitalism Magazine
Walter Williams is known to many from his often over-the-top guest hosting appearance on the Rush Limbaugh radio show. However, when he's not writing newspaper columns or doing Limbaugh's show, he teaches at George Mason University in Virginia. He put together a series of lectures on economics (available free from Capitalism Magazine) for the average citizen, and they're definitely worth a read. I'd preface this by this snippet from Williams:
Economics for the Citizen (Part 1) by Walter Williams
Professor Armen Alchian, a very distinguished economist, used to give me a hard time in class. But one day, we were having a friendly chat during our department's weekly faculty/graduate student coffee hour, and he said, "Williams, the true test of whether someone understands his subject is whether he can explain it to someone who doesn't know a darn thing about it."Here's a link to the first one (you can find links to the others on the right hand sidebar in the article).
Economics for the Citizen (Part 1) by Walter Williams
This Is Just Wrong, But I Want It!
Stephen Bainbridge provides this link to a story about exploding toads. I know: it's crass, disgusting, and will probably bring down the wrath of the PETA crowd. But, I'm in Bainbridge' camp - I want to see the video.
Bubbles and Economists
Why do bubbles exist? If markets are efficient (and frictionless), they shouldn't. In this case, if investors perceive an overvaluation, they'd short the stock and drive its price back to fundamentally sound levels. And yet, bubbles exist.
This NYT article, "Economists Try To Explain Why Bubbles Happen" gives a pretty good explanation for some of the major theories why we have bubbles:
Click here for the whole article.
This NYT article, "Economists Try To Explain Why Bubbles Happen" gives a pretty good explanation for some of the major theories why we have bubbles:
- The reluctance of sophisticated investors (like mutual funds) to short sell for fear of offending clients
- The willingness to buy into a bubble if you think the bubble is going to continue to grow for a while. This is also known in real estate as the "greater fool" approach (you don't mind buying an overpriced asset if you can find an even bigger fool to sell it to in the future).
- Regulatory frictions
Click here for the whole article.
Should Financial Disclosures Be Mandatory?
This post from Don Boudreaux at Cafe Hayek examines whether a firm should be forced to disclose whether they outsource (off-shore?) their call centers. It gives a pretty good "slippery-slope" argument against the idea. Before I get to their argument, let me give one of my own:
Back at a previous school, the main classroom for the College of Business was next to a certain well-known coffee chain. So, I'd often run into students while getting my daily (or twice or thrice daily, depending on the day) StarCrack.
Once, I overheard two accounting students debating some accounting rule change that mandated a higher level of discolosure for all companies. They went back and forth as to why the regulation was a good thing or not. Most aggreed that it was. Then, they made the mistake of asking me what I thought (one of them was a previous student who recognized me). My view was that (above some minimal level), companies should be free to choose how much financial information they disclose. Here was my argument:
As for Don BeauDreaus's argument:
Back at a previous school, the main classroom for the College of Business was next to a certain well-known coffee chain. So, I'd often run into students while getting my daily (or twice or thrice daily, depending on the day) StarCrack.
Once, I overheard two accounting students debating some accounting rule change that mandated a higher level of discolosure for all companies. They went back and forth as to why the regulation was a good thing or not. Most aggreed that it was. Then, they made the mistake of asking me what I thought (one of them was a previous student who recognized me). My view was that (above some minimal level), companies should be free to choose how much financial information they disclose. Here was my argument:
- How much detail a company provides is observable at least to reasonably sophisticated investors
- If a company chooses not to disclose much information, a rational assumption would be that the company has something to hide
- So, the amount of disclosure serves as a signal of firm quality (in fact, even choosing not to disclose reveals information).
As for Don BeauDreaus's argument:
I answered by pointing out that requiring firms to reveal the physical location of their employees isn’t really full disclosure. It’s fuller disclosure, but it's far from full disclosure. And this distinction is relevant. There remain oodles of information about each company and its employees that is not explicitly revealed in the absence of legislation but which might well be relevant to some callers.Click here for the whole piece.
Here are some other things that many American consumers no doubt care about and that firms probably would not not reveal unless forced by government to do so:
- an employee's sexual orientation- an employee's religious beliefs
- an employee's political beliefs
- an employee’s attitudes toward controversial matters such as abortion, euthanasia, and the death penalty
So why stop with requiring firms to reveal their employees’ physical whereabouts? Why not also require firms explicitly to reveal to customers information on all of the above matters?
Subscribe to:
Posts (Atom)