IDEAS home Printed from https://ideas.repec.org/a/wsi/qjfxxx/v10y2020i01ns2010139220500020.html
   My bibliography  Save this article

The Effect of Institutional Investors’ Voice on the Terms and Outcome of Freeze-out Tender Offers

Author

Listed:
  • Beni Lauterbach

    (School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel2ECGI, Belgium)

  • Yevgeny Mugerman

    (School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel2ECGI, Belgium)

Abstract

We study the impact of institutional investors’ “voice” on 201 going private tender offers by controlling shareholders (“freeze-out” offers) in Israel. Israeli regulatory intervention in freeze-out tender offers is relatively mild; thus, institutional investors’ activism becomes crucial. We find that institutional voice has dual effects. On one hand, when there are pre-negotiations with institutional investors’ (their voice is heard), accepted offers’ premiums increase. On the other hand, when institutional investors express their voice, yet reject the offer, these rejections appear to hurt shareholders’ value. We also document significant institutional investor exit after rejected offers, especially after offers preceded by voice (pre-negotiations with institutional investors).

Suggested Citation

  • Beni Lauterbach & Yevgeny Mugerman, 2020. "The Effect of Institutional Investors’ Voice on the Terms and Outcome of Freeze-out Tender Offers," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-33, February.
    • Handle: RePEc:wsi:qjfxxx:v:10:y:2020:i:01:n:s2010139220500020
    DOI: 10.1142/S2010139220500020
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/abs/10.1142/S2010139220500020
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S2010139220500020?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shmuel Hauser, 2004. "The Value of Voting Rights to Majority Shareholders: Evidence from Dual-Class Stock Unifications," The Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1167-1184.
    2. Gaspar, Jose-Miguel & Massa, Massimo & Matos, Pedro, 2005. "Shareholder investment horizons and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 76(1), pages 135-165, April.
    3. Kaustia, Markku, 2010. "Prospect Theory and the Disposition Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(3), pages 791-812, June.
    4. Agnes Cheng, C.S. & He Huang, Henry & Li, Yinghua & Lobo, Gerald, 2010. "Institutional monitoring through shareholder litigation," Journal of Financial Economics, Elsevier, vol. 95(3), pages 356-383, March.
    5. Tom Y. Chang & David H. Solomon & Mark M. Westerfield, 2016. "Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect," Journal of Finance, American Finance Association, vol. 71(1), pages 267-302, February.
    6. JOSEPH A. McCAHERY & ZACHARIAS SAUTNER & LAURA T. STARKS, 2016. "Behind the Scenes: The Corporate Governance Preferences of Institutional Investors," Journal of Finance, American Finance Association, vol. 71(6), pages 2905-2932, December.
    7. Bøhren, Øyvind & Krosvik, Nils Erik, 2013. "The economics of minority freezeouts: Evidence from the courtroom," International Review of Law and Economics, Elsevier, vol. 36(C), pages 48-58.
    8. Hamdani, Assaf & Kandel, Eugene & Mugerman, Yevgeny & Yafeh, Yishay, 2017. "Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment," Journal of Law, Finance, and Accounting, now publishers, vol. 2(1), pages 49-86, June.
    9. Assaf Hamdani & Yishay Yafeh, 2013. "Institutional Investors as Minority Shareholders," Review of Finance, European Finance Association, vol. 17(2), pages 691-725.
    10. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    11. Parrino, Robert & Sias, Richard W. & Starks, Laura T., 2003. "Voting with their feet: institutional ownership changes around forced CEO turnover," Journal of Financial Economics, Elsevier, vol. 68(1), pages 3-46, April.
    12. Anat R. Admati & Paul Pfleiderer, 2009. "The "Wall Street Walk" and Shareholder Activism: Exit as a Form of Voice," The Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2445-2485, July.
    13. Morck, Randall K. (ed.), 2000. "Concentrated Corporate Ownership," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226536781, September.
    14. Nagel, Stefan, 2005. "Short sales, institutional investors and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 78(2), pages 277-309, November.
    15. Atanasov, Vladimir & Black, Bernard & Ciccotello, Conrad & Gyoshev, Stanley, 2010. "How does law affect finance? An examination of equity tunneling in Bulgaria," Journal of Financial Economics, Elsevier, vol. 96(1), pages 155-173, April.
    16. Guercio, Diane Del & Hawkins, Jennifer, 1999. "The motivation and impact of pension fund activism," Journal of Financial Economics, Elsevier, vol. 52(3), pages 293-340, June.
    17. Lucian Arye Bebchuk & Marcel Kahan, 2000. "Adverse Selection and Gains to Controllers in Corporate Freezeouts," NBER Chapters, in: Concentrated Corporate Ownership, pages 247-264, National Bureau of Economic Research, Inc.
    18. Bajo, Emanuele & Barbi, Massimiliano & Bigelli, Marco & Hillier, David, 2013. "The role of institutional investors in public-to-private transactions," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4327-4336.
    19. Denes, Matthew R. & Karpoff, Jonathan M. & McWilliams, Victoria B., 2017. "Thirty years of shareholder activism: A survey of empirical research," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 405-424.
    20. Helwege, Jean & Intintoli, Vincent J. & Zhang, Andrew, 2012. "Voting with their feet or activism? Institutional investors’ impact on CEO turnover," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 22-37.
    21. Boone, Audra L. & White, Joshua T., 2015. "The effect of institutional ownership on firm transparency and information production," Journal of Financial Economics, Elsevier, vol. 117(3), pages 508-533.
    22. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    23. Menachem (Meni) Abudy & Beni Lauterbach, 2015. "Changes in Controlling Shareholders’ Holdings: Do they Entail Financial Tunneling?," Advances in Financial Economics, in: International Corporate Governance, volume 18, pages 47-63, Emerald Group Publishing Limited.
    24. Guhan Subramanian, 2007. "Post-Siliconix Freeze-Outs: Theory and Evidence," The Journal of Legal Studies, University of Chicago Press, vol. 36(1), pages 1-26, January.
    25. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    26. Chen, Xia & Harford, Jarrad & Li, Kai, 2007. "Monitoring: Which institutions matter?," Journal of Financial Economics, Elsevier, vol. 86(2), pages 279-305, November.
    27. Callen, Jeffrey L. & Fang, Xiaohua, 2013. "Institutional investor stability and crash risk: Monitoring versus short-termism?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3047-3063.
    28. Lucian A. Bebchuk & Scott Hirst, 2019. "The Specter of the Giant Three," NBER Working Papers 25914, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lauterbach, Beni & Mugerman, Yevgeny & Shemesh, Joshua, 2024. "Prospect theory in M&A: Do historical purchase prices affect merger offer premiums and announcement returns?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    2. Efrat Dressler & Yevgeny Mugerman, 2023. "Doing the Right Thing? The Voting Power Effect and Institutional Shareholder Voting," Journal of Business Ethics, Springer, vol. 183(4), pages 1089-1112, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dasgupta, Amil & Fos, Vyacheslav & Sautner, Zacharias, 2021. "Institutional investors and corporate governance," LSE Research Online Documents on Economics 112114, London School of Economics and Political Science, LSE Library.
    2. Edmans, Alex & Holderness, Clifford, 2016. "Blockholders: A Survey of Theory and Evidence," CEPR Discussion Papers 11442, C.E.P.R. Discussion Papers.
    3. Drobetz, Wolfgang & Ehlert, Sebastian & Schröder, Henning, 2021. "Institutional ownership and firm performance in the global shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 146(C).
    4. Hamdani, Assaf & Lauterbach, Beni & Mugerman, Yevgeny, 2020. "Reservation prices in shareholders’ response to freeze-out tender offers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    5. Bajo, Emanuele & Barbi, Massimiliano & Bigelli, Marco & Hillier, David, 2013. "The role of institutional investors in public-to-private transactions," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4327-4336.
    6. Nguyen, Nghia Huu & Shiu, Cheng-Yi, 2022. "Stewardship, institutional investors monitoring, and firm value: Evidence from the United Kingdom," Journal of Multinational Financial Management, Elsevier, vol. 64(C).
    7. Francis, Bill B. & Hasan, Iftekhar & Zhu, Yun, 2021. "The impact of political uncertainty on institutional ownership," Journal of Financial Stability, Elsevier, vol. 57(C).
    8. Harford, Jarrad & Kecskés, Ambrus & Mansi, Sattar, 2018. "Do long-term investors improve corporate decision making?," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 424-452.
    9. Döring, Simon & Drobetz, Wolfgang & El Ghoul, Sadok & Guedhami, Omrane & Schröder, Henning, 2021. "Cross-country determinants of institutional investors’ investment horizons," Finance Research Letters, Elsevier, vol. 39(C).
    10. Liu, Ningyue & Bredin, Don & Cao, Huijuan, 2020. "The investment behavior of Qualified Foreign Institutional Investors in China," Journal of Multinational Financial Management, Elsevier, vol. 54(C).
    11. Wang, Xianjue, 2022. "Disloyal managers and proxy voting," Finance Research Letters, Elsevier, vol. 44(C).
    12. Jing Huang & Steven R. Matsunaga & Z. Jay Wang, 2020. "The Role of Pension Business Benefits in Institutional Block Ownership and Corporate Governance," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 1959-1989, December.
    13. Schmidt, Cornelius & Fahlenbrach, Rüdiger, 2017. "Do exogenous changes in passive institutional ownership affect corporate governance and firm value?," Journal of Financial Economics, Elsevier, vol. 124(2), pages 285-306.
    14. Peter Iliev & Jonathan Kalodimos & Michelle Lowry, 2021. "Investors’ Attention to Corporate Governance [The “Wall Street Walk” and shareholder activism: Exit as a form of voice]," The Review of Financial Studies, Society for Financial Studies, vol. 34(12), pages 5581-5628.
    15. Chung, Chune Young & Hur, Seok-Kyun & Liu, Chang, 2019. "Institutional investors and cost stickiness: Theory and evidence," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 336-350.
    16. Nguyen, Phuong-Anh & Kecskés, Ambrus & Mansi, Sattar, 2020. "Does corporate social responsibility create shareholder value? The importance of long-term investors," Journal of Banking & Finance, Elsevier, vol. 112(C).
    17. Kałdoński, Michał & Jewartowski, Tomasz & Mizerka, Jacek, 2020. "Capital market pressure, real earnings management, and institutional ownership stability - Evidence from Poland," International Review of Financial Analysis, Elsevier, vol. 71(C).
    18. Xue, Xiaolin & Zhang, Junrui & Yu, Yangxin, 2020. "Distracted passive institutional shareholders and firm transparency," Journal of Business Research, Elsevier, vol. 110(C), pages 347-359.
    19. Borochin, Paul & Yang, Jie, 2017. "The effects of institutional investor objectives on firm valuation and governance," Journal of Financial Economics, Elsevier, vol. 126(1), pages 171-199.
    20. Simon Döring & Wolfgang Drobetz & Sadok El Ghoul & Omrane Guedhami & Henning Schröder, 2021. "Institutional investment horizons and firm valuation around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 212-244, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:qjfxxx:v:10:y:2020:i:01:n:s2010139220500020. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/qjf/qjf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.