Cass Finance Blog

June 19, 2014
by Meziane Lasfer

A tale of two cities: Who trades in takeovers?

One of the major puzzles in corporate finance is the asymmetric reaction of the market to takeover announcements. For long, stock prices of the target firms tend to increase significantly on the announcement date, while those of the bidders tend to decrease. On average, previous empirical studies show that, while target shareholders see their excess returns amount to about 30%, depending on the timing of the base price relative to the price on the announcement date, those of the bidder are relatively zero if not slightly negative. This raises a question of whether such decisions are value creating or destroying, and whether all the synergies tend to accrue to only the target shareholders. In this blog, I assess whether this is the case of the recent takeover bid by Pfizer of AstraZeneca, and I also address the question of whether this asymmetric reaction is limited to the announcement date or extends to the pre- and post-event period. Continue Reading →

Who benfits in takeovers?

June 12, 2014 by Meziane Lasfer | 0 comments

As the dust is now settled, it is appropriate to ask the question of who benefited from Pfizer’s bid intentions of AstraZeneca. Undoubtedly, the various advisers have gained lots of fees, which, so far, are not known as they are not disclosed by the two companies. In terms of investors, the answer to this question lies in the behaviour of stock prices around the financial press reports and the various news announcements. Continue Reading →

April 3, 2014
by Thorsten Beck

Friday links

A recent presentation by Lord Turner, former head of FSA, at Cass a few weeks ago, relating new technological trends, income inequality, low interest rates and overexpansion of the financial system.

An interesting paper on crowd-funding and how it depends on securities laws.

Is finance in the genes?  This paper on Financial Development and Genetic Diversity argues that yes.

Next week will see a conference on Corporate Governance in Banks: Five Years After the Walker Review, organized by our colleague and follow-blogger Peter Hahn.  We will make sure to report on it.

February 6, 2014
by Meziane Lasfer

Should investors believe financial analysts recommendations?

Financial analysts have always played a significant role in advising clients as to whether to buy, hold or sell some shares. For example, yesterday, Deutsche Bank issued a “buy” recommendation and kept its 1,025p target price for Compass group, a UK company, despite the firm’s underperformance relative to the FTSE during the past month due to emerging market concerns. DB argued that Compass has a good ability to deliver strong earnings per share growth, and therefore, its share price is expected to increase from its current value of 907p.  The question remains as to whether such forecasts will materialise. This is a topic that has been widely research for a number of years and views on this issue diverge significantly. Overall, the investors may need to think carefully before following such recommendations. Continue Reading →

January 7, 2014
by Paolo Volpin

Caps on Pay for Top Executives?

On 24 November 2013, the Swiss voters turned down the proposal to cap the compensation of top executives to 12 times the pay of the lowest-paid employees. Earlier in the year (3 March 2013) they had voted in strong support to give shareholders veto power on compensation and to ban big payouts for new and departing managers. A future vote on a less tight multiple is also likely.

This is just the latest manifestation of the drive towards regulating managerial compensation started after the 2007-2008 financial crisis. As governments have been forced to rescue failing financial institutions, politicians have intervened to rein in incentives based on options and bonuses. For instance, the 2008 German bailout plan required banks accepting state aid to cap annual salaries of their executives at €500,000, and to forgo bonuses and dividend payments. Similarly, in early 2009 the U.S. government capped the pay of top executives at companies receiving significant federal assistance at $500,000. The British, Swedish, and Swiss governments also set limits on financiers’ compensation in their efforts to rescue their banking systems.

Does the market for managers need policy intervention? What is the market failure to be addressed? Continue Reading →

December 5, 2013
by Paolo Volpin

Labor and Finance: An Uneasy Relation

The 2007-2008 financial crisis and the subsequent global recession have caused so much job destruction that over 80 million net new jobs will be needed worldwide to restore pre-crisis employment rates. These events have led to an increase in social discontent and income inequality. Many share the view that workers (and taxpayers as well) have unfairly borne the cost of the risk taking behavior of many financial institutions. Conversely, bankers and providers of capital have benefited from the bailout and paid too little compared to the costs they have caused. US President Obama famously remarked in December 2009: “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street. … They do not get it. They are still puzzled why it is that people are mad at the banks. Well, let’s see. You guys are drawing down $10 million, $20 million bonuses after America went through the worst year that it’s gone through in decades, and you guys caused the problem.” Continue Reading →

December 3, 2013
by Meziane Lasfer

Should investors worry about companies that delist from the London Alternative Market (AIM)?

Companies that list on the AIM are usually small, young and high growth. The main advantage of AIM is its relatively low regulation and the ability of firms to get quotation when they have less than three years of age. However, in recent years a large number of these firms delist. Some of them do so to “move up the ladder”, i.e., to join the Main market, others delist through takeovers, breach of regulation (usually loss of NOMADs), while others do so at the request of the company. There are contrasting differences across these forms.  In particular, firms that transfer to the main market are usually very good: they have high profitability, high growth and generate significant positive excess returns before and on the announcement dates. The worst are firms that delist voluntarily, i.e., “at the request of the company”. These, together with those that breach the regulation, generate significant negative stock returns, thus they destroy value. Thus, while, for the first sample the delisting is good and measures the success of AIM, the remaining last two forms signal the failure of AIM and the shareholders should worry about them. Continue Reading →

November 22, 2013
by Thorsten Beck

Friday links

A new report by the World Bank on Financial Inclusion, including reference to lots of new data sources, financial innovation (of the good kind!) and policy challenges


The dark side of good bank governance: leading to lower capitalization and more fragility, as argued by Deniz Anginer and co-authors with empirical data on the U.S.


Financial Regulation after the crisis: how did we get here and how do we get out?  With this provocative headline, Jerry Caprio argues against risk weights and for a leverage ratio.  Most importantly, he urges a stronger focus on accountability of regulators and transparency of banks and the regulatory process.


And following up on my previous piece on the banking union, here a suggestion on how to address legacy losses before moving into a banking union with a joint public back-stop.

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