Research Interests: corporate finance, corporate governance, mergers and acquisitions
Ph.D. in Finance, Stanford University, 2011
M.A in Financial Economics, Hebrew University, 2006
B.Sc in Computer Science and Economics, Hebrew University, 2004
Abstract: Do freeze-out mergers mitigate the free rider problem of corporate takeovers? We study this question in a tender offer model with finitely many shareholders. Under a freeze-out merger, shareholders expect to receive the original offer price whether or not they tender their shares. We show that the ability to freeze-out minority shareholders increases the raider's expected profit, and this profit is higher when the ownership requirement the acquirer has to meet in order to complete a freeze-out merger is lower. Furthermore, the raider's expected profit decreases as the firm becomes more widely held. However, in the limit, for any ownership requirement that is more stringent than simple majority, the raider's expected profit converges to zero. In this sense, freeze-out mergers do not provide a solution to the free rider problem.
Abstract: We discuss the challenges in quantifying common ownership and derive a measure that captures the extent to which overlapping ownership structures shift managers’ incentives to internalize externalities. A key feature of the measure is that it allows for the possibility that not all investors are attentive to whether a manager’s actions benefit the investor’s overall portfolio. Estimating this measure for every pair of stocks between 1980 and 2012, we find that measures of ownership overlap have increased far more than managers’ motive to internalize how their choices affect other firms’ valuations. We also find no clear association between the growth of indexing and managerial motives, and our findings are robust to various modeling assumptions. Overall, our findings show that investor attention is likely important for assessing common ownership’s impact on managerial incentives.
Abstract: This paper studies the advisory role of the board of directors in takeovers. I develop a model in which the takeover premium and the ability of the target board to resist the takeover are endogenous. The analysis relates the influence of the board on target shareholders and the reaction of the market to its recommendations to various characteristics of the acquirer and the target. I also show that the expected target shareholder value can decrease with the expertise of the board and it is maximized when the board is biased against the takeover. Generally, uninformative and ignored recommendations are not necessarily evidence that the target board has no influence on the outcome of the takeover. Perhaps surprisingly, under the optimal board structure, target shareholders ignore the recommendations of the board, which are never informative in equilibrium.
Doron Levit and Nadya Malenko (2016), The Labor Market for Directors and Externalities in Corporate Governance, Journal of Finance, 71(2), pp. 775-808.
Abstract: This paper examines how the labor market for directors and directors' reputational concerns affect corporate governance. We develop a model in which directors can influence corporate governance of their firms, and corporate governance, among other things, affects firms' demand for new directors. Whether the labor market rewards directors for having a reputation of being shareholder-friendly or management-friendly is endogenous and depends on the aggregate level of corporate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of corporate governance decisions across firms. Directors' reputational concerns amplify the corporate governance system in the sense that strong systems become stronger and weak systems become weaker. We derive implications for director appointments, multiple directorships, transparency of the corporate governance system, and board size.
Abstract: We identify a commitment problem that prevents bidders from unseating resisting and entrenched incumbent directors of target companies through proxy fights. We discuss potential remedies and argue that activist investors are more resilient to this commitment problem and can mitigate the resulting inefficiencies by putting such companies into play. This result holds even if bidders and activists have similar expertise and can use similar techniques to challenge the incumbents, and it is consistent with the evidence that most proxy fights are launched by activists, not by bidders. Building on this insight, we study the implications of activist interventions on the M&A market.
Abstract: In numerous applications of management and governance the principal uses private information to influence the actions of other agents, and if needed, exercises her authority and directly intervenes in the decision process. The main result of this paper shows that the power to intervene in the agent's decision limits the ability of the principal to effectively communicate her information. The perverse effect of intervention on communication is not trivial; it can harm the principal's payoff, especially when the cost of intervention is low or the underlying agency problem is severe. These novel results are applied to managerial leadership, corporate boards, private equity, and shareholder activism.
Abstract: Conventional wisdom is that diversification weakens governance by spreading an investor too thinly. We show that, when an investor owns multiple firms ("common ownership"), governance through both voice and exit can strengthen -- even if the firms are in unrelated industries. Under common ownership, an informed investor has flexibility over which assets to retain and which to sell. She sells low-quality firms first, thereby increasing price informativeness. In a voice model, the investor's incentives to monitor are stronger since "cutting-and-running" is less profitable. In an exit model, the manager's incentives to work are stronger since the price impact of investor selling is greater.
Abstract: This paper studies communications between investors and firms as a form of corporate governance. The main premise is that activist investors cannot force their ideas on companies; they must persuade the board or other shareholders that implementing these ideas is in the best interest of the firm. I show that voice (launching a public campaign) and exit (selling shares) enhance the ability of activists to govern through communication. The analysis identifies the factors that contribute to successful dialogues. Moreover, consistent with the prevalence of behind-the-scenes communications, the analysis shows that initial communications are less effective when they are made public.
Abstract: Shareholder proposals are a common form of shareholder activism. Voting for shareholder proposals, however, is non-binding in the sense that the management has the authority to reject the proposal even if it received majority support from shareholders. We analyze whether non-binding voting is an effective mechanism for conveying shareholder expectations. We show that in contrast to binding voting, non-binding voting generally fails to convey shareholder views when the interests of the manager and shareholders are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of non-binding voting only if there is substantial conflict of interest between shareholders and the activist.
Abstract: This paper studies the optimal structure of the board with an emphasis on the expertise of directors. The analysis provides three main results. First, the expertise of a value-maximizing board can harm shareholder value. Second, it is optimal to design a board whose members are biased against the manager, especially when their expertise is high. Third, directors' desire to demonstrate expertise can shift power from the board to the manager on the expense of shareholders. In this sense, the "friendliness" of the board is endogenous. The effect of these reputation concerns is amplified when the communication within the boardroom is transparent.
The course focuses on financial tools, techniques, and best practices used in buyouts (financial buyers) and acquisitions (strategic buyers). While it will touch upon various strategic, organizational, and general management issues, the main lens for studying these transactions will be a financial one. It will explore how different buyers approach the process of finding, evaluating, and analyzing opportunities in the corporate-control market; how they structure deals and how deal structure affects both value creation and value division; how they add value after transaction completion; and how they realize their ultimate objectives (such as enhanced market position or a profitable exit). The course is divided into two broad modules. The first module covers mergers and acquisitions, and the second one studies buyouts by private equity partnerships. During the spring semester this course cannot be taken pass/fail.
The focus of this course is on buying (or acquiring controlling stakes in) firms. The main topics to be covered are mergers and friendly acquisitions, hostile takeovers and buyouts. Using case studies, the course surveys the drivers of success in the transactions. While issues regarding motive and strategy will be discussed, financial theory would be the main lens used to view these control acquiring transactions. This will allow students to (1) evaluate transactions through valuation approaches and (2) structure deals employing financial innovation as a response to legal framework and economic frictions. This course should be of interest to students interested in pursuing careers as private equity investors, advisors in investment banking and corporate managers that deal with these issues. This course assumes familiarity with valuation analysis. During the spring semester students are not permitted to take this course pass fail.
This course covers Advanced theory and empirical investigations; financial desisions of the firm, dividends, capital structure, mergers, and takeovers.