| dc.description.abstract | This dissertation consists of two essays. The first essay (Chapter 1) looks at retiree medical plans in the context of mergers and acquisition activity. The second essay (Chapter 2) is an investigation of the at-the-market (ATM) offerings, an alternative method for follow-on equity issuance.
In my study of retiree medical plans, I conduct the first analysis of private sector firms with retiree medical benefit plans in the context of mergers and acquisitions activity. Examining how acquirers respond to the presence of retiree medical plan liabilities in their targets, I find statistically and economically significant reductions in acquisition premia in deals in which the target is a sponsor of a retiree medical plan. Critically, these results are driven only by plans that have a general assets funding arrangement, in which in which a plan has no assets, or the assets are comingled with the plan sponsor’s other funds. This suggests acquirers are aware of and compensate for the liabilities arising from the transfer of the retiree medical plan with reduced acquisition premia. I also find that target firms that sponsor retiree medical plans are less likely to be targeted for acquisition as well as less likely to be acquired. These effects are also driven by plans with a general assets funding arrangement. This suggests the uncertainty about the value of retiree medical plan liabilities is a source of risk that acts as a takeover deterrent.
At-the-market offerings, in which firms forgo the firm commitment process and issue follow-on equity directly into the secondary market, has rapidly become an important method by which firms raise equity capital. Across a sample spanning 2005-2019, I document a trend of increasing number of issues as well as proceeds, both in absolute terms and relative to SEOs. In 2019, the number of ATM issues was 72.4% that of SEOs, and the proceeds from ATMs were 29.5% that of SEOs. I also find a -3.61% market reaction to ATM offering announcements, compared to -1.34% for SEOs. I find that the market reaction to both ATM offer announcement and SEO announcement has a strong negative association with prior stock price run-up. However, ATM offer announcement returns are decreasing in offer size, while the market’s reaction to SEO announcements is increasing in offer size. These findings are consistent with the asymmetric information framework of Myers and Majluf (1984) and with the costly certification hypothesis of Chemmanur and Fulghieri (1994). Finally, I use a difference-in-difference framework exploit the 2008 SEC regulations change to test the potential effect of an ATM offering on firm value. I find evidence consistent with ATMs being value-enhancing for firms that choose to utilize them. | en_US |
