Essays on authorized shares, stock splits, and top-up options

Hilmi Songur, University of Texas at El Paso


This dissertation consists of two separate but broadly related essays investigating the role of authorized shares in corporate events. In the first essay, I examine the relation between management`s power to issue new shares of stock and stock split abnormal announcement returns. I posit that the mechanical reduction in excess authorized shares (EAS) caused by a stock split, decreases management`s power to issue stock. I argue that this results in lower agency costs and thereby increases shareholder`s value. After controlling for other factors, and consistent with my hypothesis, I find that the pre-split ratio of unissued authorized shares to total outstanding shares (Excess Authorized Ratio-EAR) is positively related to the abnormal stock split announcement returns. My analysis suggests nontrivial economic benefits accrue to shareholders from a reduction in management's power to issue stock and firms that have a higher pre-split EAR benefit the most. In the second essay, I investigate the role of top-up options granted by target managers to bidders in tender offers. A top-up option enables bidders to bypass target shareholder consent and allows for relatively fast execution of the tender offer. My evidence, from 456 tender offers announced during 2000-2012 suggests that deals with top-up options are detrimental to both bidder and target shareholders, when compared to tender offers without the top-up feature. This effect seems to be concentrated in the pre-2007 period. After 2006 a large majority of tender offers include top-up options. I also find that the use of top-up options is negatively related to the use of lock-up options in the early period. In the later period of my sample, when lock-up options were no longer used in tender offers, toeholds are negatively related to the use of top-up options. Moreover top-up options increase the speed of deal completion and are associated with less hostility, higher target free cash flows, and higher termination fees. Overall, I conclude that the use of top-up options is most consistent with the anti-competitive hypothesis.

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Recommended Citation

Songur, Hilmi, "Essays on authorized shares, stock splits, and top-up options" (2014). ETD Collection for University of Texas, El Paso. AAI3623473.