Japan's corporate culture has traditionally prioritized the interests of stakeholders such as employees and suppliers over those of shareholders. After a decades-long economic slump, Japan's government has begun efforts to improve corporate governance and firms' incentives to engage with shareholders. Misaki Capital was founded in 2013 with a strategy of constructively engaging with portfolio firms, providing operational and financial advice to management in order to improve shareholder value. This case asks students to consider the attractiveness of Japanese equities given recent reforms and to evaluate the investment approach of Misaki Capital.
This case centers around the Air Products' hostile takeover attempt of Airgas in 2010. Air Products argued that its offer of a 38% premium is generous given Airgas' poor performance, which Air Products attributed to underperforming and entrenched managers at Airgas. On the other hand, Airgas' management argued that the company's recent struggles are cyclical and that Air Products' offer grossly undervalues Airgas' long-run potential. How might Airgas' management credibly communicate its conviction to shareholders? Should Airgas shareholders side with Air Products and accept a certain short term return, or should they side with Airgas' management and accept an uncertain but potentially higher long-term outcome? How should the Airgas board balance its responsibilities to short-term versus long-term shareholders?
Palepu, Krishna, Suraj Srinivasan, Charles CY Wang, and David Lane. “Alibaba Goes Public.” Harvard Business School Case 115-029, 2014.
Oberholzer-Gee, Felix, Esel Cekin, and Charles CY Wang. “Turkcell.” Harvard Business School Case 715-009, 2014.
It’s no secret that the American economy is suffering from the twin ills of slow growth and rising income inequality. Many lay the blame at the doors of America’s largest public corporations. The charge: These firms prefer to distribute cash generated from their businesses to shareholders through stock buybacks and dividends rather than invest for the long term, undermining job growth and putting our economic future at risk. Excessive distributions to shareholders, it’s further claimed, also increase inequality: They cause wages to stagnate while enriching shareholders and executives.
Cohen and Wang (2013) (CW2013) provide evidence consistent with market participants perceiving staggered boards to be value reducing. Amihud and Stoyanov (2016) (AS2016) contests these findings, reporting some specifications under which the results are not statistically significant. We show that the results retain their significance under a wide array of robustness tests that address the concerns expressed by AS2016. Our empirical findings reinforce the conclusions of CW2013.
Applying a “co-search" algorithm to Internet traffic at the SEC's EDGAR web- site, we develop a novel method for identifying economically-related peer firms and for measuring their relative importance. Our results show that firms appearing in chronologically adjacent searches by the same individual (Search-Based Peers or SBPs) are fundamentally similar on multiple dimensions. In direct tests, SBPs dominate GICS6 industry peers in explaining cross-sectional variations in base firms' out-of-sample: (a) stock returns, (b) valuation multiples, (c) growth rates, (d) R&D expenditures, (e) leverage, and (f) profitability ratios. We show that SBPs are not constrained by standard industry classification, and are more dynamic, pliable, and concentrated. We also show that co-search intensity captures the degree of similarity between firms. Our results highlight the potential of the collective wisdom of investors ― extracted from co-search patterns ― in addressing long-standing benchmarking problems in finance.
We provide a tractable model of firm-level expected holding period returns using two firm fundamentals – book-to-market ratio and ROE – and study the cross-sectional properties of the model-implied expected returns. We find that: 1) firm level expected returns and expected profitability are time-varying, but highly persistent; 2) forecasts of holding period returns strongly predict the cross section of future returns up to three years ahead. We document a highly significant predictive pooled regression slope for future quarterly returns of 0.86, whereas the popular factor-based expected return models have either an insignificant or a significantly negative association with future returns. In supplemental analyses, we show that these forecasts are also informative of the time-series variation in aggregate conditions: 1) for a representative firm, the slope of the conditional expected return curve is more positive in good times, when expected short-run returns are relatively low; 2) the model-implied forecaster of aggregate returns exhibits modest predictive ability. Collectively, we provide a simple, theoretically-motivated, and practically useful approach to estimating multi-period ahead expected returns.