Essays on authorized shares, stock splits, and top-up options
This dissertation consists of two separate but broadly related essays investigating the role of authorized shares in corporate events. In the first essay, I examine the relation between management`s power to issue new shares of stock and stock split abnormal announcement returns. I posit that the mechanical reduction in excess authorized shares (EAS) caused by a stock split, decreases management`s power to issue stock. I argue that this results in lower agency costs and thereby increases shareholder`s value. After controlling for other factors, and consistent with my hypothesis, I find that the pre-split ratio of unissued authorized shares to total outstanding shares (Excess Authorized Ratio-EAR) is positively related to the abnormal stock split announcement returns. My analysis suggests nontrivial economic benefits accrue to shareholders from a reduction in management's power to issue stock and firms that have a higher pre-split EAR benefit the most. In the second essay, I investigate the role of top-up options granted by target managers to bidders in tender offers. A top-up option enables bidders to bypass target shareholder consent and allows for relatively fast execution of the tender offer. My evidence, from 456 tender offers announced during 2000-2012 suggests that deals with top-up options are detrimental to both bidder and target shareholders, when compared to tender offers without the top-up feature. This effect seems to be concentrated in the pre-2007 period. After 2006 a large majority of tender offers include top-up options. I also find that the use of top-up options is negatively related to the use of lock-up options in the early period. In the later period of my sample, when lock-up options were no longer used in tender offers, toeholds are negatively related to the use of top-up options. Moreover top-up options increase the speed of deal completion and are associated with less hostility, higher target free cash flows, and higher termination fees. Overall, I conclude that the use of top-up options is most consistent with the anti-competitive hypothesis.^
Songur, Hilmi, "Essays on authorized shares, stock splits, and top-up options" (2014). ETD Collection for University of Texas, El Paso. AAI3623473.