Research seminar “DOUBLE BIDS FOR DUAL-CLASS SHARES” by Tom Vinaimont, Assistant Professor, Hong Kong Baptist University
WHEN: Friday, February 16, 12 p.m. – 1 p.m.
WHERE: Block C3 (GSB/GSPP Building), 3rd floor, Room 3037
In light of renewed interest in the relation between shareholder protection and control arrangements, we first thoroughly review the optimality of 1S1V in the original setting of Grossman and Hart (GH, 1988) and Harris and Raviv (HR, 1989). The issue is what set of rules the entrepreneur will put in place, re take-overs, so as to maximize the IPO value of the firm. The only structural changes we admit relative to the seminal articles are that both incumbent and rival management can have private benefits rather than just one of them, and that bids are unconditional offers for all shares. After this analysis of the perfect-foresight optimal charter we consider the imperfect-foresight problem where the entrepreneur-founder only knows the distribution from which the rival will be drawn. We find that, from the founder’s perspective, 1S1V is never optimal with imperfect foresight, and its optimality is surprisingly rare even with perfect foresight. We also explain why governments rarely step in: from simulations we find that the social impact of the charter choice seems to be far smaller than the private impact (on IPO value or post-take-over value). Lastly, we go beyond the dual-class case, explaining the role and usefulness of multiple-class structures.
Tom Vinaimont started off his career in Finance working as a Financial Analyst / Portfolio Manager for an Insurance Company head-quartered Brussels during the mid nineties. The lure of independence in academia made him decide to further his studies. He entered the doctoral program at KULeuven (Belgium) and during the years surrounding the millennium change stayed at NYU’s Stern School of Business as a visiting scholar. Tom obtained his Doctorate from the KULeuven in 2003. He remained in a full time association with City University of Hong Kong (CityU) from 2002 until 2015. From 2015 to 2017 Tom joined Hong Kong Baptist University (HKBU). During his stay in Hong Kong, Tom was asked from time to time to assist the courts in Hong Kong as an expert witness in Finance. The reports he produced have been used and quoted from the District Court, to the High Court, the Court of First Instance and the Court of Final Appeal. The experiences from outside practice serve as input in classes he teaches on Derivatives, Risk Management, Investments, Financial Markets, International Finance and Corporate Finance and International Financial Management. Tom’s research projects are on Asset Pricing, Financial Econometrics, Security Design and on Behavioral Finance. His work has been published in international peer-reviewed journal, such as the Journal of Banking and Finance and the Journal of Business Finance & Accounting.