Pascal Frantz | LSE - Academia.edu (original) (raw)
Papers by Pascal Frantz
Disclosure of executive,compensation,schemes,has been,made,mandatory over the past decade in many... more Disclosure of executive,compensation,schemes,has been,made,mandatory over the past decade in many,countries including the UK and the US. Firms however,tend not to fully disclose the functional form of their executive com- pensation schemes. This paper provides a rationale for the lack of voluntary disclosure by firms. It introduces,a voluntary,disclosure model,in which,executive compen- sation solves a moral hazard problem, the resolution of
International Journal of Accounting Auditing and Performance Evaluation, Feb 1, 2008
Journal of Financial Services Research, 2013
ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becomi... more ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becoming involved in a merger or an acquisition. Using a multinomial logistic regression and a Cox regression with time-dependent covariates, we investigate the determinants of being a target or an acquirer from a sample of 777 deals involving EU acquirers and 312 global targets over the period of 1991 to 2006. Both the multinomial logistic and Cox regressions identify the same determinants associated with becoming acquirers or targets. A higher likelihood of becoming an acquirer exists for larger banks with a history of high growth, greater cost X-efficiency, and lower capitalization. In contrast, banks are more likely to be targets if they have lower free cash flows, are less efficient, are relatively illiquid, and are under-capitalized. But, the predictive power of the two regressions is different as the multinomial logistic regression outperforms the Cox regression when predicting the likelihood of becoming an acquirer.
This paper investigates whether M&A operations influence the performance of banks. Using a sample... more This paper investigates whether M&A operations influence the performance of banks. Using a sample of 714 deals involving EU acquirers and targets located throughout the world over the period 1991-2005, we investigate whether M&A operations are associated with improved performance (measured using both standard accounting ratios and cost and alternative profit X-efficiency measures). Despite the extensive and ongoing consolidation process in the banking industry, we find that M&A operations are associated with a slight deterioration in return on equity, cash flow return and profit efficiency and with a marked improvement in cost efficiency. Hence, the improvements in cost efficiency appear to be transferred to bank clients. These changes in performance are directly attributable to the M&A operations, and would not have occurred in their absence. Moreover, these changes exhibit a particularly negative trend for cross-border deals to testify the importance of geographical relatedness in order to achieve better post-M&A performance. The environmental and bank-characteristics that make a deal successful or unsuccessful are finally identified.
Journal of Financial Services Research, Feb 13, 2009
This paper investigates whether M&A operations influence the performance of banks. Using a sample... more This paper investigates whether M&A operations influence the performance of banks. Using a sample of 714 deals involving EU acquirers and targets located throughout the world over the period 1991-2005, we analyse whether M&A operations are reflected in improved performance (measured using both standard accounting ratios and cost and alternative profit X-efficiency measures). Despite the extensive and ongoing consolidation process in the banking industry, we find that M&A operations are associated to a slight deterioration in return on equity, cash flow return and profit efficiency and contemporaneously to a marked improvement in cost efficiency. Hence, the improvements in cost efficiency appear to be transferred to bank clients. These changes in (cost and profit) efficiency are directly determined by the M&A operations, and would not have occurred in the absence of any M&A operation. Moreover, these changes exhibit a particularly negative trend for cross-border deals to testify the importance of geographical relatedness in order to achieve better post-M&A performance. JEL classification code: G21, G34
Working Papers, 2005
Many companies establish collaborative relationships (CRs) with suppliers either alongside or in ... more Many companies establish collaborative relationships (CRs) with suppliers either alongside or in preference to purchasing parts through a process of competitive bidding (CB). CRs o¤er ‡exibilities and options arising mainly from the "looseness" of the contractual relationship. One signi…cant decision element confronting a …rm intending to engage in a CR is when to enter such a relationship and when to abandon it. This paper develops a model that focuses on such timing issues. It provides an optimal timing valuation approach to establishing/abandoning a CR that incorporates di¤erential learning rate payo¤s. To achieve this, a real options' frame of reference is adopted that enables a formal analysis of the contingencies embedded in a CR. A standard illustration of the application of the model is provided.
SSRN Electronic Journal, 2000
ABSTRACT This paper derives the implications of strategic disclosure for the earnings-returns rel... more ABSTRACT This paper derives the implications of strategic disclosure for the earnings-returns relation within a setting derived from Dye (1985), Jung and Kwon (1988), and Ohlson (1995), in which firms' managers disclose favourable earnings forecasts and withhold unfavourable earnings forecasts. It shows that such strategic disclosure by managers leads to concavity in the relation between contemporaneous reported accounting earnings and stock returns. This paper hence provide a new and intuitive explanation for the concavity in this relation reported in empirical studies.
SSRN Electronic Journal, 2000
governance failures, in which the entrepreneur selects the weak governance regime when the strong... more governance failures, in which the entrepreneur selects the weak governance regime when the strong governance regime maximizes economic welfare, may however arise.
SSRN Electronic Journal, 2000
This paper analyzes the problem of designing optimal nancial regulation when regulatory arbitrage... more This paper analyzes the problem of designing optimal nancial regulation when regulatory arbitrage allows competition from other regulators, and whether regulatory harmonization as a means to curb regulatory arbitrage is desirable. We nd (i) that regulatory arbitrage and competition matter in the sense that the optimal autarky approach to regulation may not be optimal in open economies; (ii) regulatory arbitrage that takes place in equilibrium is not as important as the possibility of regulatory arbitrage and the associated impact on regulatory competition; and (iii) regulatory diversity can be welfare optimal even though it leads to more regulatory arbitrage activity than regulatory harmonization.
SSRN Electronic Journal, 2000
ABSTRACT This paper analyzes how debt forgiveness and exchange offers resolve inefficiencies asso... more ABSTRACT This paper analyzes how debt forgiveness and exchange offers resolve inefficiencies associated with debt overhang in a dynamic setting. In a static model debt forgiveness and exchange offers are equivalent -- in a dynamic model they are not. Debt forgiveness is feasible as a means to restructure debt when the firm expands into a competitive market, whereas exchange offers are necessary to eliminate the inefficiency of expansion into uncompetitive markets. We discuss the model in the light of existing empirical evidence and the empirical implications of the model.
SSRN Electronic Journal, 2000
SSRN Electronic Journal, 2000
ABSTRACT Disclosure of executive compensation schemes has been made mandatory over the past decad... more ABSTRACT Disclosure of executive compensation schemes has been made mandatory over the past decade in many countries including the UK and the US. Firms however tend not to fully disclose the functional form of their executive compensation schemes. This paper provides a rationale for the lack of voluntary disclosure by firms. It introduces a voluntary disclosure model in which executive compensation solves a moral hazard problem, the resolution of which depends on proprietary information. It provides conditions under which equilibria involving either disclosure or nondisclosure of the executive compensation scheme can obtain and shows that shareholders are better off precommitting not to disclose the executive compensation scheme whenever possible. It establishes that executive directors are better off too in the absence of disclosure of executive compensation schemes. It furthermore shows that mandating the disclosure of executive compensation may not increase the richness of investors' information set.
Journal of Management & Governance, 2007
This paper aims to evaluate the private and social gains of shareholder activism in an optimal co... more This paper aims to evaluate the private and social gains of shareholder activism in an optimal contracting framework. Active shareholders influence the contracting game with the CEO, and therefore also the size and the distribution of the surplus to be split between the shareholders and the CEO. Although the model is very simple and focussing on the creation and distribution of welfare between the shareholders and the CEO, we nonetheless identify surprising divergence between the private and social profitability of shareholder activism. Shareholder activism that is privately profitable is not necessarily socially profitable.
Journal of Financial Services Research, 2009
This paper investigates whether M&A operations influence the performance of banks. Using a sample... more This paper investigates whether M&A operations influence the performance of banks. Using a sample of 714 deals involving EU acquirers and targets located throughout the world over the period 1991-2005, we analyse whether M&A operations are reflected in improved performance (measured using both standard accounting ratios and cost and alternative profit X-efficiency measures). Despite the extensive and ongoing consolidation process in the banking industry, we find that M&A operations are associated to a slight deterioration in return on equity, cash flow return and profit efficiency and contemporaneously to a marked improvement in cost efficiency. Hence, the improvements in cost efficiency appear to be transferred to bank clients. These changes in (cost and profit) efficiency are directly determined by the M&A operations, and would not have occurred in the absence of any M&A operation. Moreover, these changes exhibit a particularly negative trend for cross-border deals to testify the importance of geographical relatedness in order to achieve better post-M&A performance. JEL classification code: G21, G34
Journal of Financial Services Research, 2013
ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becomi... more ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becoming involved in a merger or an acquisition. Using a multinomial logistic regression and a Cox regression with time-dependent covariates, we investigate the determinants of being a target or an acquirer from a sample of 777 deals involving EU acquirers and 312 global targets over the period of 1991 to 2006. Both the multinomial logistic and Cox regressions identify the same determinants associated with becoming acquirers or targets. A higher likelihood of becoming an acquirer exists for larger banks with a history of high growth, greater cost X-efficiency, and lower capitalization. In contrast, banks are more likely to be targets if they have lower free cash flows, are less efficient, are relatively illiquid, and are under-capitalized. But, the predictive power of the two regressions is different as the multinomial logistic regression outperforms the Cox regression when predicting the likelihood of becoming an acquirer.
Journal of Business Finance <html_ent glyph="@amp;" ascii="&"/> Accounting, 2006
This paper introduces a model capturing managers' disclosure policies in settings in which disclo... more This paper introduces a model capturing managers' disclosure policies in settings in which disclosure is rewarded by the financial market because disclosure implies that managers are endowed with information and endowment of information may potentially improve the firm's productive efficiency. It provides sufficient condition for a threshold disclosure equilibrium to obtain and compares disclosure policies in a setting in which endowment of information improves the firm's productive efficiency with disclosure policies in a setting in which endowment of information has no impact on the firm's productive efficiency. Managers' disclosure policies are shown to depend crucially on whether the endowment of information is exogenous or endogenous. When the endowment of information is exogenous, an increase in the usefulness of information in improving the firm's productive efficiency leads to a decrease in the disclosure threshold and hence an increase in the amount of information disclosed. In contrast, when the endowment of information is endogenous, an increase in the usefulness of information in improving the firm's productive efficiency has no effect on the disclosure threshold but leads to a decrease in the probability with which information is acquired and hence a decrease in the amount of information disclosed. As, in the threshold disclosure equilibrium, the net present value of information acquisition arising from any increase in production efficiency is negative, an increase in the usefulness of information in improving the firm's productive efficiency thus reduces the inefficiency caused by information acquisition.
Journal of Business Finance & Accounting, 2013
ABSTRACT This paper analyzes the theoretical link between governance (defined loosely as the degr... more ABSTRACT This paper analyzes the theoretical link between governance (defined loosely as the degree of protection offered to outside shareholders), and the cost of borrowing. We find, consistent with empirical evidence, that improvements in governance reduce the likelihood of default. Also, we find that improvements in governance will monotonically increase or reduce the cost of debt, where the sign of the relationship depends on the firm's restructuring cost in default. Finally, we find that the strength of the governance mechanism can influence the incentives to carry out risk shifting.
Disclosure of executive,compensation,schemes,has been,made,mandatory over the past decade in many... more Disclosure of executive,compensation,schemes,has been,made,mandatory over the past decade in many,countries including the UK and the US. Firms however,tend not to fully disclose the functional form of their executive com- pensation schemes. This paper provides a rationale for the lack of voluntary disclosure by firms. It introduces,a voluntary,disclosure model,in which,executive compen- sation solves a moral hazard problem, the resolution of
International Journal of Accounting Auditing and Performance Evaluation, Feb 1, 2008
Journal of Financial Services Research, 2013
ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becomi... more ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becoming involved in a merger or an acquisition. Using a multinomial logistic regression and a Cox regression with time-dependent covariates, we investigate the determinants of being a target or an acquirer from a sample of 777 deals involving EU acquirers and 312 global targets over the period of 1991 to 2006. Both the multinomial logistic and Cox regressions identify the same determinants associated with becoming acquirers or targets. A higher likelihood of becoming an acquirer exists for larger banks with a history of high growth, greater cost X-efficiency, and lower capitalization. In contrast, banks are more likely to be targets if they have lower free cash flows, are less efficient, are relatively illiquid, and are under-capitalized. But, the predictive power of the two regressions is different as the multinomial logistic regression outperforms the Cox regression when predicting the likelihood of becoming an acquirer.
This paper investigates whether M&A operations influence the performance of banks. Using a sample... more This paper investigates whether M&A operations influence the performance of banks. Using a sample of 714 deals involving EU acquirers and targets located throughout the world over the period 1991-2005, we investigate whether M&A operations are associated with improved performance (measured using both standard accounting ratios and cost and alternative profit X-efficiency measures). Despite the extensive and ongoing consolidation process in the banking industry, we find that M&A operations are associated with a slight deterioration in return on equity, cash flow return and profit efficiency and with a marked improvement in cost efficiency. Hence, the improvements in cost efficiency appear to be transferred to bank clients. These changes in performance are directly attributable to the M&A operations, and would not have occurred in their absence. Moreover, these changes exhibit a particularly negative trend for cross-border deals to testify the importance of geographical relatedness in order to achieve better post-M&A performance. The environmental and bank-characteristics that make a deal successful or unsuccessful are finally identified.
Journal of Financial Services Research, Feb 13, 2009
This paper investigates whether M&A operations influence the performance of banks. Using a sample... more This paper investigates whether M&A operations influence the performance of banks. Using a sample of 714 deals involving EU acquirers and targets located throughout the world over the period 1991-2005, we analyse whether M&A operations are reflected in improved performance (measured using both standard accounting ratios and cost and alternative profit X-efficiency measures). Despite the extensive and ongoing consolidation process in the banking industry, we find that M&A operations are associated to a slight deterioration in return on equity, cash flow return and profit efficiency and contemporaneously to a marked improvement in cost efficiency. Hence, the improvements in cost efficiency appear to be transferred to bank clients. These changes in (cost and profit) efficiency are directly determined by the M&A operations, and would not have occurred in the absence of any M&A operation. Moreover, these changes exhibit a particularly negative trend for cross-border deals to testify the importance of geographical relatedness in order to achieve better post-M&A performance. JEL classification code: G21, G34
Working Papers, 2005
Many companies establish collaborative relationships (CRs) with suppliers either alongside or in ... more Many companies establish collaborative relationships (CRs) with suppliers either alongside or in preference to purchasing parts through a process of competitive bidding (CB). CRs o¤er ‡exibilities and options arising mainly from the "looseness" of the contractual relationship. One signi…cant decision element confronting a …rm intending to engage in a CR is when to enter such a relationship and when to abandon it. This paper develops a model that focuses on such timing issues. It provides an optimal timing valuation approach to establishing/abandoning a CR that incorporates di¤erential learning rate payo¤s. To achieve this, a real options' frame of reference is adopted that enables a formal analysis of the contingencies embedded in a CR. A standard illustration of the application of the model is provided.
SSRN Electronic Journal, 2000
ABSTRACT This paper derives the implications of strategic disclosure for the earnings-returns rel... more ABSTRACT This paper derives the implications of strategic disclosure for the earnings-returns relation within a setting derived from Dye (1985), Jung and Kwon (1988), and Ohlson (1995), in which firms' managers disclose favourable earnings forecasts and withhold unfavourable earnings forecasts. It shows that such strategic disclosure by managers leads to concavity in the relation between contemporaneous reported accounting earnings and stock returns. This paper hence provide a new and intuitive explanation for the concavity in this relation reported in empirical studies.
SSRN Electronic Journal, 2000
governance failures, in which the entrepreneur selects the weak governance regime when the strong... more governance failures, in which the entrepreneur selects the weak governance regime when the strong governance regime maximizes economic welfare, may however arise.
SSRN Electronic Journal, 2000
This paper analyzes the problem of designing optimal nancial regulation when regulatory arbitrage... more This paper analyzes the problem of designing optimal nancial regulation when regulatory arbitrage allows competition from other regulators, and whether regulatory harmonization as a means to curb regulatory arbitrage is desirable. We nd (i) that regulatory arbitrage and competition matter in the sense that the optimal autarky approach to regulation may not be optimal in open economies; (ii) regulatory arbitrage that takes place in equilibrium is not as important as the possibility of regulatory arbitrage and the associated impact on regulatory competition; and (iii) regulatory diversity can be welfare optimal even though it leads to more regulatory arbitrage activity than regulatory harmonization.
SSRN Electronic Journal, 2000
ABSTRACT This paper analyzes how debt forgiveness and exchange offers resolve inefficiencies asso... more ABSTRACT This paper analyzes how debt forgiveness and exchange offers resolve inefficiencies associated with debt overhang in a dynamic setting. In a static model debt forgiveness and exchange offers are equivalent -- in a dynamic model they are not. Debt forgiveness is feasible as a means to restructure debt when the firm expands into a competitive market, whereas exchange offers are necessary to eliminate the inefficiency of expansion into uncompetitive markets. We discuss the model in the light of existing empirical evidence and the empirical implications of the model.
SSRN Electronic Journal, 2000
SSRN Electronic Journal, 2000
ABSTRACT Disclosure of executive compensation schemes has been made mandatory over the past decad... more ABSTRACT Disclosure of executive compensation schemes has been made mandatory over the past decade in many countries including the UK and the US. Firms however tend not to fully disclose the functional form of their executive compensation schemes. This paper provides a rationale for the lack of voluntary disclosure by firms. It introduces a voluntary disclosure model in which executive compensation solves a moral hazard problem, the resolution of which depends on proprietary information. It provides conditions under which equilibria involving either disclosure or nondisclosure of the executive compensation scheme can obtain and shows that shareholders are better off precommitting not to disclose the executive compensation scheme whenever possible. It establishes that executive directors are better off too in the absence of disclosure of executive compensation schemes. It furthermore shows that mandating the disclosure of executive compensation may not increase the richness of investors' information set.
Journal of Management & Governance, 2007
This paper aims to evaluate the private and social gains of shareholder activism in an optimal co... more This paper aims to evaluate the private and social gains of shareholder activism in an optimal contracting framework. Active shareholders influence the contracting game with the CEO, and therefore also the size and the distribution of the surplus to be split between the shareholders and the CEO. Although the model is very simple and focussing on the creation and distribution of welfare between the shareholders and the CEO, we nonetheless identify surprising divergence between the private and social profitability of shareholder activism. Shareholder activism that is privately profitable is not necessarily socially profitable.
Journal of Financial Services Research, 2009
This paper investigates whether M&A operations influence the performance of banks. Using a sample... more This paper investigates whether M&A operations influence the performance of banks. Using a sample of 714 deals involving EU acquirers and targets located throughout the world over the period 1991-2005, we analyse whether M&A operations are reflected in improved performance (measured using both standard accounting ratios and cost and alternative profit X-efficiency measures). Despite the extensive and ongoing consolidation process in the banking industry, we find that M&A operations are associated to a slight deterioration in return on equity, cash flow return and profit efficiency and contemporaneously to a marked improvement in cost efficiency. Hence, the improvements in cost efficiency appear to be transferred to bank clients. These changes in (cost and profit) efficiency are directly determined by the M&A operations, and would not have occurred in the absence of any M&A operation. Moreover, these changes exhibit a particularly negative trend for cross-border deals to testify the importance of geographical relatedness in order to achieve better post-M&A performance. JEL classification code: G21, G34
Journal of Financial Services Research, 2013
ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becomi... more ABSTRACT This paper investigates the determinants associated with the likelihood of a bank becoming involved in a merger or an acquisition. Using a multinomial logistic regression and a Cox regression with time-dependent covariates, we investigate the determinants of being a target or an acquirer from a sample of 777 deals involving EU acquirers and 312 global targets over the period of 1991 to 2006. Both the multinomial logistic and Cox regressions identify the same determinants associated with becoming acquirers or targets. A higher likelihood of becoming an acquirer exists for larger banks with a history of high growth, greater cost X-efficiency, and lower capitalization. In contrast, banks are more likely to be targets if they have lower free cash flows, are less efficient, are relatively illiquid, and are under-capitalized. But, the predictive power of the two regressions is different as the multinomial logistic regression outperforms the Cox regression when predicting the likelihood of becoming an acquirer.
Journal of Business Finance <html_ent glyph="@amp;" ascii="&"/> Accounting, 2006
This paper introduces a model capturing managers' disclosure policies in settings in which disclo... more This paper introduces a model capturing managers' disclosure policies in settings in which disclosure is rewarded by the financial market because disclosure implies that managers are endowed with information and endowment of information may potentially improve the firm's productive efficiency. It provides sufficient condition for a threshold disclosure equilibrium to obtain and compares disclosure policies in a setting in which endowment of information improves the firm's productive efficiency with disclosure policies in a setting in which endowment of information has no impact on the firm's productive efficiency. Managers' disclosure policies are shown to depend crucially on whether the endowment of information is exogenous or endogenous. When the endowment of information is exogenous, an increase in the usefulness of information in improving the firm's productive efficiency leads to a decrease in the disclosure threshold and hence an increase in the amount of information disclosed. In contrast, when the endowment of information is endogenous, an increase in the usefulness of information in improving the firm's productive efficiency has no effect on the disclosure threshold but leads to a decrease in the probability with which information is acquired and hence a decrease in the amount of information disclosed. As, in the threshold disclosure equilibrium, the net present value of information acquisition arising from any increase in production efficiency is negative, an increase in the usefulness of information in improving the firm's productive efficiency thus reduces the inefficiency caused by information acquisition.
Journal of Business Finance & Accounting, 2013
ABSTRACT This paper analyzes the theoretical link between governance (defined loosely as the degr... more ABSTRACT This paper analyzes the theoretical link between governance (defined loosely as the degree of protection offered to outside shareholders), and the cost of borrowing. We find, consistent with empirical evidence, that improvements in governance reduce the likelihood of default. Also, we find that improvements in governance will monotonically increase or reduce the cost of debt, where the sign of the relationship depends on the firm's restructuring cost in default. Finally, we find that the strength of the governance mechanism can influence the incentives to carry out risk shifting.