Transcript Comment on “Shareholder Voting Rights and Mutual Fund Trading

Comment on
“Shareholder Voting Rights
and Mutual Fund Trading in
Takeovers”
Discussant: Pei-Gi Shu
Summary:
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Mutual fund managers value their voting rights in
firms and exhibit different trading patterns between
M&A deals with and without voting rights: they are
net buyers in offers with voting rights and net
sellers in offers without voting rights.
The difference in trading is more pronounced in
low-value acquisitions.
Both voting rights and mutual fund trading affect
the probability of deal completion.
Merits of this paper
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To find a natural experiment to investigate the value
of voting rights: acquisitions that are within 20percent rule might be exempt from the surveillance
of existing shareholders.
To investigate the joint impact of “voting with
ballots” and “voting with feet” on the eventual
consequence of takeovers.
The empirical results are robust to various model
specifications and controls.
Comments
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Why would mutual funds net purchase the low-value
M&As in the first place? What would be the potential
benefits for these mutual funds to net buy the cumvoting shares? Why would they bother to get
involved in and prevent the completion of poor deals
rather than just dump these shares in the first place? A
comparison between the buy-and-stop payoff and
dumping-share payoff of the poor-quality acquisitions
might help to justify why mutual funds would get
involved in, exert their voting rights on, and stop the
poor-quality deals.
Comments
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Using mutual fund trade in aggregation
might fail to capture possible heterogeneity
among individual funds. Further
comparisons of funds with different
characteristics might help. For example,
voting rights might be more valuable to
active, long-term, large-position funds than
their inactive, short-term , and small-position
counterparts.
Comments
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The claim of voting with their feet might be
too strong, according to the statistics in Table
2 and 3. The net trades could be defined
alternatively as an adjustment of prior trades
rather than an adjustment of the trades of
cross sectional stocks bearing similar
characteristics.
Comments
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Since mutual fund trade is dictated by voting
rights, the logistic analysis in Table 8 could
include residual trade with the expected trade
that is firstly estimated by voting rights.
Comments
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Misplacement of the column labels in Table 2:
It should be “Vote” and “No-Vote” in Panel A
and “No-Vote” and “Vote” in Panel B.
The trading patterns for “Cash” (which
implies “No-Vote”) and for “Vote” are
insignificantly different (Table 2). Is this
somewhat inconsistent with the valuingvoting-rights hypothesis?