event study in shipping industry 6522 (1)

8/3/2019 Event Study in Shipping Industry 6522 (1)

1/19

This article was downloaded by:[HEAL- Link Consortium]On: 12 November 2007Access Details: [subscription number 772811123]Publisher: Taylor & FrancisInforma Ltd Registered in England and Wales Registered Number: 1072954Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

Maritime Policy & ManagementAn International Journal of Shipping and PortResearchPublication details, including instructions for authors and subscription information:http://www.informaworld.com/smpp/title~content=t713694970

Value creation through corporate destruction?Corporate governance in shipping takeoversTheodore Syriopoulos a; Ioannis Theotokas aa Department of Shipping, Trade and Transport, School of Business, University ofthe Aegean, 2A Korai str, Chios, Greece

Online Publication Date: 01 June 2007

To cite this Article: Syriopoulos, Theodore and Theotokas, Ioannis (2007) 'Valuecreation through corporate destruction? Corporate governance in shippingtakeovers', Maritime Policy & Management, 34:3, 225 - 242

To link to this article: DOI: 10.1080/03088830701342973URL: http://dx.doi.org/10.1080/03088830701342973

PLEASE SCROLL DOWN FOR ARTICLE

Full terms and conditions of use: http://www.informaworld.com/terms-and-conditions-of-access.pdf

This article maybe used for research, teaching and private study purposes. Any substantial or systematic reproduction,re-distribution, re-selling, loan or sub-licensing, systematic supply or distribution in any form to anyone is expresslyforbidden.

The publisher does not give any warranty express or implied or make any representation that the contents will becomplete or accurate or up to date. The accuracy of any instructions, formulae and drug doses should beindependently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings,demand or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with orarising out of the use of this material.
http://www.informaworld.com/smpp/title~content=t713694970http://dx.doi.org/10.1080/03088830701342973http://www.informaworld.com/terms-and-conditions-of-access.pdfhttp://www.informaworld.com/terms-and-conditions-of-access.pdfhttp://dx.doi.org/10.1080/03088830701342973http://www.informaworld.com/smpp/title~content=t713694970


2/19

MARIT. POL. MGMT., JUNE 2007

VOL. 34, NO. 3, 225242

Value creation through corporate destruction?Corporate governance in shipping takeovers

THEODORE SYRIOPOULOS* and IOANNIS THEOTOKAS

Department of Shipping, Trade and Transport, School of Business,

University of the Aegean, 2A Korai str. 82100, Chios, Greece

This paper investigates corporate governance implications for shareholder valuein shipping takeovers. Inadequate corporate governance structures are shown toaffect corporate growth and even turn a company into a takeover target. Theinteresting case study of Stelmar Shipping is employed in an event study model, inorder to evaluate the impact of takeover bids on corporate value and assess target

and bidder shareholder returns. In line with past evidence, target shareholders arefound to attain positive value gains but bidder shareholders only marginalbenefits. The empirical findings underline the need for convenient corporategovernance systems that minimize frictions related to agency problems andpotentially result to a positive impact on shareholder value.

1. Introduction

Intensified competition in the shipping business has accelerated corporate

consolidation in the industry. Mergers and acquisitions have been taking place at

a high pace over the last few years across all major market segments [1]. At the same

time, recent developments in both freight and financial markets have increased the

attractiveness of stock markets as an investment funding mechanism; an increasing

number of shipping companies have proceeded to Initial Public Offerings (IPOs) on

international stock markets. To mention just the case of the Greek shipping business,

six companies have been publicly listed on the New York Stock Exchange (NYSE)

over the last three years, while several others prepare to follow. In this environment,

the corporate governance issue ranks high in the agenda of the shipping companies.

According to the OECD [2], corporate governance is the system by which business

corporations are directed and controlled. The corporate governance structure

specifies the distribution of rights and responsibilities among different participants in

the corporation, such as the board, managers, shareholders and other stakeholders,and spells out the rules and procedures for making decisions on corporate affairs.

Based on that, a broad perspective of corporate governance covers company

relationships with its stakeholders. From a narrower perspective, corporate

governance focuses on managementshareholder relationships and associated

shareholder value implications.

The major objective of this paper is to investigate the role of corporate governance

and assess the impact and implications for shareholder value following corporate

takeovers. A case study methodological approach is employed to investigate these

issues in the shipping industry. For that, Stelmar Shipping Ltd is undertaken as a

*To whom correspondence should be addressed. e-mail: [email protected]

Maritime Policy & Management ISSN 03088839 print/ISSN 14645254 online 2007 Taylor & Francishttp://www.tandf.co.uk/journals

DOI: 10.1080/03088830701342973


3/19

useful case; its corporate governance system is evaluated and its business course is

analysed; post-merger implications for target and bidder shareholders are assessed

on the basis of an event-study model. Stelmar Shipping is a company that started as

a family-owned enterprise; went publicly listed with its founder initially remaining as

the Chairman; proceeded to separate ownership from control, with the founder

remaining the major shareholder; and ended up as a takeover target to finally mergewith a competitor, all within a ten-year period. This corporate profile makes Stelmar

a unique case for the shipping industry and an interesting one to evaluate. The paper

contributes a number of innovative and interesting empirical findings with a view to

corporate governance implications for mergers and their impact on shareholder

value in the shipping business. To the authors knowledge, these issues have not been

previously investigated. The empirical results, however, should be treated with

caution. Further research over a larger sample of shipping mergers and takeovers

should be undertaken to support the robustness of the conclusions drawn. The paper

is organized as follows. Section 2 outlines corporate governance implications for the

market for corporate control. As an application, Section 3 presents the case study ofStelmar Shipping. Section 4 evaluates corporate takeover implications for share-

holder value applying an event study model and discusses the empirical findings.

Section 5 concludes.

2. Corporate governance and takeovers

Corporate governance structures affect corporate value through two distinct

channels: (i) the expected cash flows accruing to investors and (ii) the cost of

capital, i.e. the expected rate of return [34]. An efficient corporate governance

structure is anticipated to show positive correlation with improved operating

performance, higher stock price and higher firm valuation [56]. Firms with weak

corporate governance mechanisms appear to be less effective in attaining robust

financial results and ensuring value maximization. Poor financial performance, in

turn, increases considerably the risk of a hostile takeover bid. Empirical evidence

indicates that firms subject to a hostile takeover bid underperform [78]. In the

absence of corporate governance controls, the interests of managers versus those of

shareholders are more likely to diverge [9]. Monitoring and incentives have been

identified as important governance controls to reduce agency costs but their impact

on firm performance has been mixed [1016].

According to agency theory, managers may opportunistically use their control to

pursue objectives that are contrary to the interest of shareholders. Thus, marketmechanisms are needed to prevent managers from doing so [17]; the stock market

appears to be one of the most effective. Within this market, the market for corporate

control can be seen as the field where alternative management teams compete with

each other for the right to manage corporate assets owned by the shareholders. The

management team that attaches the highest value to corporate assets or promises the

highest returns to shareholders takes over the right to manage these assets until it is

replaced by another management team that attributes even greater value to

corporate assets [1820]. Competition between management teams in the market for

corporate control increases the pressure on managers to perform well [2122].

In mergers and acquisitions (M&As), the course of a merger deal can be affected bymanagers personal interests and incentives, not necessarily aligned with those of

their shareholders. The managers of the target firm, for instance, may be in danger of

226 T. Syriopoulos and I. Theotokas


4/19

losing their managerial positions in the post-merger successor firm. This can result to

a loss of future compensation and possible misalignment of incentives between the

targets board and shareholders [2324]. In some target companies, incumbents

might attempt to avert value enhancing mergers (managerial entrenchment [25]).

In other cases, target executives may agree to lower merger premiums in exchange for

offers of future employment or other perquisites with the successor company [26].Since target firm shareholders can receive a substantial premium in a merger while

target managers risk losing their seats, manager incentives to promote a merger deal

tend to diverge from those of their shareholders. Shareholders generally prefer their

company to become a target, while managers prefer their company be one of the

survivors. The attitude of the management towards a takeover deal can reveal the

efficiency of the corporate governance structure towards shareholder interests. Stock

price reaction to a merger bid is affected by potential agency problems in the target

firm [27]. Adverse managerial objectives are likely to lead to value destroying

acquisitions and yield lower returns, if any, to bidder shareholders [2829].

Mergers can have both contractionary and expansionary effects in corporaterestructuring [30]. When an industry experiences excessive capacity, mergers often

serve a contractionary role resulting in industry consolidation. In cases where an

industry faces strong growth opportunities and high profitability, mergers play an

expansionary role to raise new capital. Acquisitions or divestitures can create value

when they bring efficiency to firms. A merger can improve the performance of the

target firm by replacing inefficient management teams, introducing new technology

and know-how, or restructuring corporate assets to meet new market conditions

[3132]. Mergers and acquisitions may destroy shareholder value if motives other than

value maximization dominate. The class of non-value-maximization theories is

based on the hypotheses of managerial self-interest [3334] and managerial hubris [35].

The former hypothesis argues that M&As may simply be the outcome of managers

self-interest. Managers of acquiring firms may attempt to build large empires to satisfy

their own ambition. They may also intentionally acquire assets that necessitate their

personal skills to protect themselves from labour market competition, although

the assets may not be profitable for shareholders. The hubris hypothesis argues that,

even if the managers want to work for the best interests of their shareholders,

they might sometimes make wrong decisions about M&As because of their hubris.

They might overestimate either the benefits from M&As and overpay the targets

or their own ability to control and operate a large organization or even underestimate

the post-merger integration costs. In these cases, mergers result in wealth transfer

from acquirers to targets and do not create value for acquirer shareholders.In this framework, the impact of corporate governance on shipping mergers

is investigated. The natural divergence of target shareholder and manager incentives

in response to a merger bid renders takeovers a model experiment for exploring

corporate governance effectiveness and assessing implications for shareholder value.

These issues have not been investigated previously in the context of the shipping

business. Thus, this paper attempts to fill this gap and yield a range of innovative and

useful insights [3637].

3. The case of Stelmar ShippingThe shipping industry experiences robust consolidation trends and Stelmar Shipping

Ltd is considered to be an exceptional case study paradigm. Stelmar had experienced

Value creation through corporate destruction? 227


5/19

a dynamic course of business growth and moved gradually from a family-owned firm

to a publicly listed company with separate management and ownership entities.

Partly due to persisting corporate governance deficiencies and managerial

conflicts with the founder and major shareholder, the company became a takeover

target and, following successive takeover attacks, it was finally merged with a major

competitor.

3.1. Corporate profile of Stelmar Shipping

Stelmar Shipping Ltd was founded in 1992 by Stelios Hajiioannou, as an

international tanker company that developed its fleet with a primary focus on

Handymax tankers (refined petroleum products) and Panamax tankers (crude oil).

Stelmar has operated a large and mainly modern tanker fleet of 41 double-hull

vessels (consisting of 24 Handymax, 13 Panamax and four Aframax tankers), plus

two leased Aframax and nine leased Handymax vessels, with an average vessel age of

six years. Total cargo-carrying capacity has surpassed 2.5 million deadweight (dwt)

tons [3839]. The companys customer base has included major multinational oilcompanies, state-owned oil producers and other shippers mostly involved in long-

term charters (ranging from one to seven years). What has differentiated Stelmar

from its competitors has been its business strategy of focusing on time-charters,

which provided earnings stability in volatile freight markets. Stelmar went publicly

listed on the NYSE in March 2001.

Stelmar Shipping has operated under different corporate governance structures.

During the companys start-up phase, Stelmar was founded as a private family-

owned company. The major shareholder was serving also as the Board Chairman;

management and ownership were not separate at that stage. Following a phase of

robust growth rates, Stelmar went publicly listed on the NYSE and expanded its

shareholder base; the founder stepped down from the Board, remaining a major

shareholder, and management was separated from ownership. Strategic management

disputes, some financial slowdown and renewed investment interests for the major

shareholder were decisive factors that fuelled a series of corporate governance

frictions. These concerns provoked three successive takeover bids and led finally to

the OSGStelmar merger.

The financial performance of Stelmar has been associated with the fluctuations

experienced in the shipping business over the 20012003 period (table 1). Revenue

increased from US$109 million (2001) to US$162.4 million (2003), reflecting a

growth rate of 49.5%. Net income, however, fluctuated from US$34 million (2001)

up to US$43 million (2002) then down to US$39 million (2003). As a result, earningsgrowth turned from 27.3% (2002) to 10.6% (2003) and earnings per share (eps)

slipped from US$2.47 (2002) to US$2.21 (2003). During the same period, total assets

rose from US$592 million to US$897 million (51.4%).

3.2. Takeover attacks for Stelmar Shipping

Following listing on the NYSE in 2001, Stelmar Shipping experienced a phase of

rapid growth and fleet expansion that resulted in its ranking as one of the top

shipping companies in Handymax vessels for oil products. In mid-2004, however, the

founder and major shareholder (27% of equity) was officially announced to be

privately negotiating the merger of Stelmar with OMI Corporation. OMI, a shippingcompany with a fleet of 21 product carriers and 16 crude oil tankers, proposed a

stock-for-stock merger at 3.1 shares of OMI for one share of Stelmar; alternatively,



6/19

OMI was prepared to provide up to 25% of the proposed stock exchange in cash

(table 2). Following rejection of the OMI offer and mounting disputes over Stelmars

business strategy, the major shareholder took action to replace the Board of

Directors.

In retaliation, Stelmars Board proceeded to approve a new takeover bid proposal

by Fortress Investment Group LLC, a private equity firm. The Fortress bid was set

initially at US$38.55 per share in cash and was subsequently improved to US$40 per

share in cash (table 2). This would have been the first time a non-listed private

investment company merged with a listed shipping company. Fortress, however,

eventually withdrew its offer, as the major shareholder strongly opposed the

proposed deal.

Escalating corporate governance frictions led to a decisive Overseas

Shipholding Group (OSG) bid to acquire Stelmar (4th Q 2004). The OSG bid

price for Stelmar was set at US$48.00 per share in cash (table 2). OSG, a leading

independent bulk shipping company engaged primarily in the ocean transporta-

tion of crude oil and petroleum products, has one of the largest and most modern

tanker fleets, ranking as the sixth largest independent tanker company worldwide

(approximately 13.4 million dwt). From a strategic viewpoint, OSG management

evaluated that the merger would result in a leading OSG position in producttankers and Panamax tankers, would complement OSGs leading position in the

Very Large Crude Carriers (VLCC) and Aframax sectors and its recent entry into

the Liquid Natural Gas (LNG) sector, and would contribute to a more balanced

mix of spot and time charter revenue, improving both the quality and

sustainability of OSG future earnings growth. The merger creates a shipping

company that is the second largest publicly traded oil tanker company measured

by number of vessels and the third largest measured by deadweight tons (table 3).

The combined market value of OSG-Stelmar equity is estimated at about US$841

million; including Stelmars outstanding debt, this figure increases to US$1.3

billion. Approximately 74% of Stelmars shareholders approved the mergeragreement with OSG. Following the completion of the legal procedures, the stock

of Stelmar ceased trading on the NYSE board (January 2005).

Table 1. Financial performance of Stelmar Shipping.

2003 2002 2001

Revenue 162 391 156 508 108 647

Gross profit 118 020 108 069 76 811

Operating profit 62 879 62 463 49 513

Earnings Before Interest, Taxes,Depreciation and Amortization

(EBITDA)

55 511 62 112 51 102

Net income 38 631 43 286 34 013

Total assets 897 421 823 357 592 183

Long-term debt 452 647 413 851 326 862

Stockholder equity 358 841 312 148 209 448

Earnings per share (eps) 2.21 2.47 1.94

Earnings growth (%) 10.75 27.26

EBITDA/revenue (%) 34.18 39.69 47.03

Operating profit/assets (%) 7.01 7.59 8.36

Figures in USD thousands.Source: Company Annual Reports; Reuters.



7/19

Table

2.

TakeoverbidvaluationforStelmarShipping

.

StelmarOMI

StelmarFort

ress*

Stelm

arOSG

SJH

OMI

SJH

SJH

OSG

Target/bidderstockprice

24.78(1)

10.83

35.44

(2)

44.32(3)

56.51

Marketvalue(US$million)

434

980

621

776

2.305

Bidannouncement

17/5/04

20/9/04

13/12/04

Bidprice(US$pershare)

37.32

40.00

(4)

48.00

Bidvalue(US$million)

654

701

841

Premiu

montargetprice(%)

50.6

12.9

(5)

8.3

(6)

Takeov

errelativesize

(7)

0.44

NA

0.34

Takeov

errelativepayment(8)

1.51

1.13

1.08

Methodofpayment

Stock-for-stock(9)

Cash

Cash

Marketvalue(bidder)/(target)

2.26

2.97

Revenu

e(bidder)/(target)

1.66

2.80

Netearnings(bidder)/(target)

1.98

3.14

Assets(bidder)/(target)

1.29

2.23

Equity

(bidder)/(target)

1.50

2.56

(1)

Aso

f14May2004;

(2)

asof17Septemb

er2004;

(3)

asof10December2004;

(4)

theFortressbidpricepershare

wassetinitiallyat$38.55,correspondingtoabidvalue

ofUS$675millionandapremiumof8.78%

ontargetprice;itwassubsequentlyimprovedto$40;

(5)

premiumofFortressbidonOMIbid:7.2%;

(6)pr

emiumofOSGbid:

(i)onO

MIbid:28.6%;(ii)onFortressbid

:20%;(iii)on14/5/04Stelmarprice:93.7%;

(7)

takeoverrelativesize

(marketvalue)targetequity/bidder

equity;

(8)

takeover

relative

payment

amountpaid/targetequity;

(9)

mergertermswereproposedat3.1.

OMIsh

aresfor1SJHshare,implyingthat

Stelmarshareholderswouldown40.5%

ofthecombinedcompany;OM

Iproposedalternativelyastock-for-stockplus25%

in

cash.A

sof20January2005(officialdateo

fmergercompletion),Stelmarssto

ckceasedtradingontheNYSEboard.

*FinancialdataonFortressInvestmentGroup,aprivateequitycompany,havenotbeenavailable(NA).

Source:

CompanyAnnualReports;Compa

nyOfficialAnnouncements;Reuters.



8/19

4. Corporate takeovers and shareholder value

An M&A deal can be considered as a corporate event that moves the involved

entities along the profit function through a change in size, scope and distance from

the efficient frontier [40]. Past research underlines the role of takeovers in improving

cash flows and fundamentals as well as in penalizing poor managerial performance[41]. Empirical evidence (mainly from the banking sector) indicates positive and

significant increases in stock market value for the average merger at the time of the

deal announcement [40]. A positive impact can be explained by an increase in

efficiency, synergies or market power following the deal. The investigation of the

financial performance of bidders and targets before the corporate event (takeover

bid) can reveal some insight into the motivations of the deal. Poor financial

performance, for instance, of the target company relative the sectors average may

signal an attempt to replace inefficient management [41].

The Stelmar case enables testing of two distinct hypotheses (table 4): the synergy

hypothesis and the hubris or empire building hypothesis mentioned earlier [42].The synergy hypothesis predicts that target firms returns should be positive, bidder

returns should be non-negative and the combined firm returns should be positive.

Table 3. Targetbidder fleets.

Stelmar(1) OSG(2) OMI

Handymax 24 28

Aframax 4 20

Panamax 13 14 2

Suezmax 1 15Capesize 2

VLCC 25

LNG(3) 4

Product/chemical 24

US fleet 10

New buildings 9

Total fleet 41 104 50

Total dwt. 2 600 000 13 393 195 3 868 753

Figures as of December 2004.(1)

The fleet includes also nine leased Handymax and two leased Aframax vessels.(2) Owned operating fleet: 63 vessels (9 358302 dwt); chartered-in: 27 vessels (3 502136 dwt);chartered-in commitments: 1 vessel (305 177 dwt).(3) On-order (864 800cbm).Source: company Annual Reports.

Table 4. Takeover hypothesesexpected effect.

Firm Hubris or empire

building hypothesis

Synergy

hypothesis

Hubris and

synergy hypothesisTarget Positive Positive Positive

Bidder Negative Non-negative NegativeCombined Non-positive Positive Positive

Source: [47].



9/19

Synergies may arise in situations where the bidder and target operate in similar

industries, a focus effect [43], as in the case of Stelmar and OSG. The hubris and

empire building hypothesis predicts that target firm returns should be positive,

bidder firm returns should be negative and the combined firm returns should be

non-positive; mergers are not wealth-creating events but attempts to build corporate

empires serving managerial self-interests. Managers may prefer to stimulatecorporate growth rather than corporate value as their private benefits tend to

grow with firm size [4446]. An alternative hypothesis is that mergers are a function

of both, synergy and hubris, hypotheses. This would predict a positive revaluation of

the combined firm with negative bidder firm returns. Positive synergies may be

associated with a merger; a bidder however may overpay for the acquisition of these

synergies [47]. As a note of caution, the fair valuation of firms which are operating

in highly volatile markets, such as tanker shipping, is a difficult empirical task,

particularly as hostile takeover bids are usually made without access to due diligence.

The risks of the bidder getting the price wrong appear so high that overvaluation of

the target company cannot always be attributed to hubris.When a merger is announced, three different pieces of information affect the stock

prices of the target and bidder, though they are difficult to distinguish [27]. The

merger announcement contains information about the potential synergies arising

from the combined corporate entity, the stand-alone value of the companies involved

in the merger and the value split between target and bidder. To better understand

merger dynamics in the Stelmar case, we briefly consider the life cycle of a typical

takeover deal. Prior to the takeover, the target firm has experienced a long price

decline that typically reverts about one month before the takeover announcement

[48]. The bidder, meanwhile, exhibits modest price increases. A clear pattern of

positive stock price performance is documented for takeover targets around the

announcement date. Target firms earn a 6% average return over the three days

surrounding a takeover announcement. Bidders involved in successful takeovers

show limited price reaction at that time. In the interim period, between takeover

announcement and execution, both the target and bidder of a successful takeover

show relatively limited price movement, providing no alternative bidder appears.

These empirical findings appear remarkably stable over time [49].

4.1. An event study model for Stelmar Shipping

An event study methodology is employed in order to evaluate the implications of

the takeover attempts for Stelmar and to calculate abnormal returns for target and

bidder shareholders. Despite some scepticism over certain limitations of the eventstudy framework [50], the latter remains a robust approach for detecting abnormal

mean returns associated with corporate events [51]. A basic event study approach can

be considered as a four-step procedure. First, expected (normal) returns are

calculated using preferably a market model, although alternative models, such as the

mean adjusted return model or the market adjusted return model, have also been

proposed [52]. Second, abnormal returns (AR) during some event interval [T1 T2] are

estimated, as the difference between realized (event) returns and the expected returns,

conditional on the market model. Third, abnormal returns over the event window

are cumulated to produce cumulative abnormal returns (CAR) separately for target

and bidder shareholders. Finally, the statistical significance of these abnormalreturns is evaluated. T1 and T2 represent the start- and end-day of the event window,

respectively. The day of the first official company announcement on the takeover bid



10/19

is taken as the initial announcement day; this is day 0 in the event window for both

target and bidder firms (figure 1).

We construct abnormal returns separately for the target and the bidder firm in

each takeover bid for Stelmar. Initially, the market model (equation 1) is employed

to calculate normal (expected) returns for firm i on day t, in the absence of a

takeover bid. Abnormal returns (ARit) are then calculated for firm i on day t as in

equation (2):

Rit i i Rmt "t"t $ N0, ht 1

ARit Rit Rit Rit i

i Rmt 2

where return is measured as [(Pit Pi(t1))/Pi(t1)] and Pit is the share price of securityi at day t; Rit is the normal expected return on security i for event day t; Rit is the

observed (realized) return on security ifor event day t; Rmt is the observed return on

the market portfolio m for event day t; imeasures the mean return on security iover

the study period not explained by the market; i is the beta coefficient (sensitivity/

risk) of security i relative to the market portfolio and "t is a statistical error term

("t $ N (0, ht)). The usefulness of this empirical approach comes from the fact that,

given rationality in the stock market, the effect of a major corporate event such as a

M&A will be reflected immediately in the underlying asset prices. Thus, the events

economic impact can be measured using asset returns observed over a relatively short

time period, which are compared and contrasted with normal asset returns depictedby the market model. The normal return is defined as the return that would be

expected if the corporate event did not take place. The market model relates the

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

60.00

OMI bid for Steimer:$37.32 (17.5.04)

Fortress bid for Stemler:$40.00 (20.9.04)

OSG bid for Stelmer:$48.00 (13.12.04)

5/4/200

4

12/4/200

4

19/4/200

4

26/4/200

4

3/5/200

4

10/5/200

4

17/5/200

4

24/5/200

4

31/5/200

4

7/6/200

4

14/6/200

4

21/6/200

4

28/6/200

4

10/8/200

4

17/8/200

4

24/8/200

4

31/8/200

4

7/9/200

4

14/9/200

4

21/9/200

4

28/9/200

4

5/10/200

4

12/1

0/200

4

19/1

0/200

4

26/1

0/200

4

5/11/200

4

12/1

1/200

4

19/1

1/200

4

26/1

1/200

4

3/12/200

4

10/12/200

4

17/12/200

4

24/12/200

4

31/12/200

4

7/1/200

5

14/1/200

5

Stelmarstockprice(U

SD)

950.00

1,000.00

1,050.00

1,100.00

1,150.00

1,200.00

1,250.00

S&P500

SJH S&P500

Figure 1. Target stock price: bib announcement window [2301 30].



11/19

return of any given asset (security) to the return of the market portfolio. The models

linear specification follows from the assumed joint normality of asset returns.

The value-weighted S&P-500 stock index in NYSE is taken to represent the

market portfolio in order to estimate coefficients i and i, for the target and bidder

firms. The market model parameters are estimated over a [360 31] day-time

interval. In volatile sectors such as shipping, a specialized shipping stock index mayadd certain merits to the market model. On the other hand, such a choice may lead to

some bias in the empirical results, since there are few quoted stocks and a specified

shipping index would be only a limited subset of the total market portfolio.

Cumulative abnormal returns are determined using a geometric process [53]

(equation 3):

CART1T2 YT2

iT11 ARi 1 ARi1 1 3

where ARi is the ith day abnormal return and ARi1 is the cumulative product of

abnormal returns of all days prior to the ith day over the event window.

Focusing only on the separate corporate entities (target firm/bidder firm) of a

M&A may provide a partial and perhaps distorted interpretation of market reaction

to the takeover bids announcement. The economic impact of a takeover bid is better

appreciated when the weighted wealth gains are calculated for the target and bidder

firms. Combined cumulative abnormal returns (CCAR) of the joint firm (target

firm bidder firm) indicate total (combined) shareholder value gain or loss due to

the takeover bid. This is calculated as the weighted sum of the variation in market

value of the target and bidder firms by the following model [54]:

CCAR Vib CARib Vjt CARjt=Vib Vjt 4

where Vib and Vjt are the market values of the ith bidder firm (OMI/Fortress/OSG)

and the jth target firm (Stelmar), respectively, one-day prior to the start-period of the

event window of the initial bid announcement date (i.e. T1 1); CARib and CARjt is

the cumulative abnormal return for the ith bidder firm and the jth target firm,

respectively over the [T1 T2] event window (equation 4). To infer with a certain level

of confidence that abnormal returns are statistically significantly different from zero,

a relevant t-test is estimated as:

t-test CARi=ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiVARCARiT1T2

p5

and is compared with the corresponding t-critical value. The null hypothesis tested is

that abnormal returns cumulated over the event window are zero.

4.2. Empirical findings

The empirical findings on the takeover bids for Stelmar Shipping by OMI

Corporation and Overseas Shipholding are summarized in tables 5 and 6 [55].

In line with past empirical practice, cumulative abnormal returns are measured over

several symmetric as well as asymmetric event windows [T1 T2] around each initial

bid announcement date for Stelmar. This approach minimizes statistical sensitivity of

(target and bidder) shareholder valuation to the choice of the event window and

contributes to a robust assessment of the market reaction before and after thetakeover bid announcement. In order to simplify the analysis, we present the findings

for a range of symmetric [T1 T2] event windows, where T1 (D J) and T2 (D J)



12/19

and J 30, 10, 5 and 1 days and D 0 is the day of the bid announcement [56]. This

way we can capture early stock price reactions and run-up induced by leakage of

information (inside trading) prior to the takeover announcement and detect potential

information processing after the event [5758].

Focusing on target (Stelmar) performance, a highly positive and statistically

significant effect is evidenced around the announcement date as has been anticipated.

In most cases, abnormal returns are found to be significantly higher in the longerevent periods (30 days prior to bid announcement) and declining closer to the

announcement date. This may reflect information leakages from the target prior to

Table 6. OSG bid for Stelmar.

Event

window

Price

(US$)

Market value

(US$ million) CAR*(%)

Value / **

(US$ million)

CCAR1***

(%)

CCAR2***

(%)

Target firm: Stelmar

[30 28] 38.60 676.2 15.21 (2.52) 102.9 12.52 12.58

[10 10] 43.94 769.7 6.05 (1.50) 46.6 15.80 18.08

[5 5] 43.15 755.9 9.19 (2.24) 69.5 4.05 4.52

[1 1] 43.64 764.5 8.27 (2.10) 63.2 3.24 3.44

Bidder firm: OSG

[30 28] 56.78 2.235 20.91 (2.22) 467.4

[10 10] 64.70 2.547 22.40 (3.72) 570.7

[5 5] 63.00 2.480 8.08 (2.75) 200.5

[1 1] 58.73 2.312 1.58 (0.45) 36.5

(.): t-statistics; statistical significance at the 5% critical level.*CAR: cumulative abnormal returns.

**Value /: (market value CAR) value gain/loss for target and bidder shareholders.***CCAR1, CCAR2: combined cumulative abnormal returns, weighted by market value; total assets,respectively.

Table 5. OMI bid for Stelmar.

Event

window

Price

(US$)

Market value

(US$ million) CAR*(%)

Value /

**(US% million)

CCAR1***

(%)

CCAR2***

(%)

Target firm: Stelmar[30 30] 28.72 503.1 5.06 (1.56) 25.4 7.02 5.18

[10 10] 24.48 428.8 22.13 (2.05) 94.9 5.21 3.39[5 5] 24.45 428.3 21.67 (2.14) 92.9 6.14 3.97

[1 1] 24.38 427.1 16.23 (2.17) 69.3 2.05 1.38

Bidder firm: OMI

[30 30] 11.16 1.010 13.03 (2.34) 131.6

[10 10] 10.00 905.3 2.89 (1.44) 25.3

[5 5] 9.92 898.1 1.27 (0.39) 11.4

[1 1] 10.55 955.1 4.29 (1.20) 40.9

(.): t-statistics; statistical significance at the 5% critical level.*CAR: cumulative abnormal returns.**Value /: (market value CAR) value gain/loss for target and bidder shareholders.

***CCAR1, CCAR2: combined cumulative abnormal returns, weighted by market value; total assets,respectively.



13/19

the announcement and insiders pre-announcement positioning and is actually

supported by increased trading activity (volume of transactions) on Stelmars stock.

This is plausible since market participants may have some inside information when

target companies start looking for potential buyers or show some intention to sell.

The declining trend seen in CARs, as we move closer to the announcement date, may

be related to the fact that some bids were finally unsuccessful (OMI, Fortress) or thata long period to finalize the offer has raised doubts about the ultimate success of the

negotiations. For the [1 1] event period, cumulative abnormal returns (CARs) for

Stelmar shareholders were estimated at 16.23% and 8.27% in the OMI and OSG bid,

respectively. An increase in target shareholder value is supported then in these

takeover bids. This outcome is in accordance with past literature, as shareholders of

target firms were found to invariably receive large premiums (on average between

2040%) relative to the pre-announcement share price [40, 59].

Contrary to the target firm, bidder firms experience mixed market effects,

although negative CARs prevail in most event periods examined. This reflects an

unfavourable impact of shareholder value losses, especially for OMI shareholders.For the [1 1] event period, CARs for bidder shareholders were estimated

at 4.29% and 1.58% in the OMI and OSG case, respectively. It has been argued

that unsuccessful bids have bid premiums that are considerably lower than those in

successful hostile bids. In fact, they are much closer to the bid premiums in accepted

bids, suggesting that the market is anticipating some restructuring after unsuccessful

bids but not at as high a level as in successful bids [60]. Past empirical evidence

indicates an unfavourable effect for the shareholders of the bidding firms [44].

Combined cumulative abnormal returns (CCARs) depict the combined short-run

economic effect of both target and bidder firms weighted by their market value.

Empirical results and implications are found to diverge when the OSGStelmar bid iscompared to the OMIStelmar bid (figures 2 and 3). In the case of the unsuccessful

OMI bid, the combined entity appears to potentially produce positive shareholder

value effects in most event periods. In the case of the successful OSG bid, the

estimated CCARs indicate some potential shareholder value gains only closer to the

bid announcement ([1 1] event period). The bidder-target entity experiences

2.05% and 3.24% three-day CCARs in the OMI and OSG bids, respectively [61].

4.3. Discussion of the results

The empirical findings in the case of the Stelmar takeover raise a number of

interesting issues. For a start, a competitive market for corporate control ensuresthat target firms capture most expected gains and obtain large wealth gains around

the bid announcement. Given the premium paid to target shareholders and the

markets assessment of no aggregate wealth gains from the merger, bidder

stockholders end up experiencing non-positive (or marginal) net wealth gains. The

possibility that a merger is motivated by an objective to replace inefficient

management and to improve efficiency cannot be ruled out. These results are

consistent with empirical findings for mergers in US [54, 59] and European banks

[40, 59]. The evidence implies that when the market reacts positively to mergers, it

may anticipate benefits of economies of scope and scale (resulting in reduced costs

and increased operational efficiency) or advantages of market power in a particularindustry (oligopolistic rents). With a view to the shipping market, the combined

corporate entity following the OSGStelmar merger is going to be a global leader in



14/19

both crude and product tankers segments, attaining cross-product diversification

and risk dispersion.

In relation to corporate governance, the implicit threat of potential takeovers hasa disciplining role on managers, possibly forcing them to follow shareholder value-

maximizing strategies [62]. An anticipated high level of managerial turnover in the

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

30 26 22 18 14 10 6 2 2 6 10 14 18 22 26

Target: Stelmar Bidder: OSG CCAR

Figure 3. CARs and CCARs rarget: Stelmar versus Bidder: OSG [30 30].

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%

5.00%

10.00%

30 26 22 18 14 10 6 2 2 6 10 14 18 22 26 30

Target: Stelmar Bidder: OMI CCAR

Figure 2. CARs and CCARs target: Stelmar versus Bidder: OMI [30 30].



15/19

target firm followed by large-scale restructuring would indicate that the successful

OSGStelmar merger indeed performs a disciplinary role in an attempt to eliminate

past corporate governance weaknesses. These actions, however, are necessary but

not sufficient conditions for takeovers to be disciplinary because they could reflect

disagreement over a strategic redeployment of assets [60]. It has been argued that if

takeovers are disciplinary, then takeovers which give rise to managerial controlchanges should have higher bid premiums than those which do not [60]. These issues

cannot be definitely assessed for Stelmar as yet, since the OSGStelmar merger was

only recently concluded [63]. Corporate governance issues, however, are anticipated

to affect the sharing of gains between targets and bidders rather than affecting the

overall merger value [64]. Considering mergers with good managers versus bad

managers, the former are expected to pay a higher premium for a takeover if they

expect the deal to have potential for larger value creation. In these deals, the bid

premium may thus serve as a signal of deal quality, implying a positive relationship

between premium paid and merger gains. On the other hand, a positive revaluation

of the combined firm with negative returns for the bidder firm may support thecombined synergy and hubris hypothesis, as seems to be the case for the OSG-

Stelmar bid. The adverse economic impact seen for the bidder could indicate

potential economic limitations for the merger [65] or even that bad managers

pursue their personal motives and thus overpay for mergers that provide them with

the private benefits of diversification. This in turn implies a value transfer from

bidder to target [66].

The announcement of a takeover bid for one firm can induce spillover effects to

industry peers that are in turn accompanied by a positive revaluation of their market

value. Market evidence indicates that major Stelmar peers, such as Tsakos Energy

Navigation (TEN), Teekay Shipping Corporation (TK), and General Maritime

Corporation (GMR), experienced significant positive market revaluations indeed,

ranging from 12.01% (TEN) to 85.33% (GMR) [67], during the period of the

takeover bids for Stelmar. This stock price appreciation may reflect expectations for

ongoing restructuring throughout the industry [68].

5. Conclusions

The primary objective of the paper has been to investigate the implications

of corporate governance structures for shareholder value in corporate takeovers.

An interesting feature of the shipping industry is that it continues its operation on a

traditional basis, in the sense that family capitalism retains its dynamism andremains a dominant managerial model. During recent years, changes in the

environment of the shipping business have led a growing number of shipping

companies to adopt a corporate structure that allows them to exploit capital market

advantages. The majority of Greek-owned publicly listed companies apply a

corporate governance model based on a concentrated ownership structure with

major shareholders directly represented on the Board of Directors or even holding

managerial positions themselves [69, 70]. Stelmar Shipping has been an exception, as

ownership stakes have been relatively dispersed and owners exercised indirect control

on management by electing representatives to the Board.

Key issues were raised with the Stelmar case study, related to the extent thatcompanies, with promising growth prospects in the corporate arena, turn simply to

an investment vehicle for major shareholders, become a takeover target due to



16/19

corporate governance deficiencies and finally exit their autonomous market course as

they merge with a rival company. Whether this is also a promising development for

long run shareholder advantage remains to be seen. Empirical research indicates that

corporate governance concerns over management effectiveness and strategic choices

can turn the company into a takeover target. The course of corporate growth may

have been different for Stelmar had corporate governance been more effective andhad its founder and main shareholder not been devoted to his principle of be(ing) an

investor in shipping, as in any other business that creates a good economic return

[71]. In any case, the OSG takeover of Stelmar resulted in a Stelmar stock price

appreciation with a 94% takeover premium (relative to the stock price one day prior

to the first bid announcement). This market value increase of Stelmar was mainly

distributed to company shareholders. However, the long run impact on post-merger

company performance and the shareholder value implications associated with the

effectiveness of the merger will have to be assessed in due course. [72, 73].

The Stelmar case clearly underlines the central role of corporate governance in the

shipping industry and puts forward a number of future research directions. Strategicquestions that could be investigated refer to whether a corporate governance model,

such as that of Stelmar, secures the long-run development of a company or whether

it simply achieves short-term financial returns. Furthermore, this corporate

governance model should be evaluated in contrast to alternative models prevailing

in the industry [74]. The concentration of ownership structure is also an interesting

issue for further investigation in shipping, as empirical findings suggest that a more

concentrated ownership structure is positively associated with higher firm profit-

ability [75].

The present empirical findings should be treated with caution, since their

robustness should be tested against a larger sample of M&A cases in the shippingindustry. The construction of a meaningful and flexible corporate governance index,

based on the particular characteristics of the shipping industry, would support the

direct assessment of corporate governance implications for shareholder value.

References and notes1. PANAYIDES, Ph. and GONG, S. X. H., 2002, Consolidation, mergers and acquisitions in the

shipping industry. In: The Handbook of Maritime Economics and Business, edited byC. Grammenos (London: LLP Publishers), pp. 598620.

2. OECD, 1999, OECD Principles of Corporate Governance (Paris: OECD).3. BEINER, S . , DROBETZ, W . , SCHMID, M . a n d ZIMMERMANN, H., 2004, An integrated

framework of corporate governance and firm valuation: evidence from Switzerland.Working Paper, European Corporate Governance Institute.

4. DROBETZ, W., SCHILLHOFER, A. and ZIMMERMANN, H., 2004, Corporate governance andexpected stock returns: evidence from Germany. European Financial Management, 10,267293.

5. Firms with stronger shareholder rights have been found to experience higher firm value,higher profits, higher sales growth, lower capital expenditures and made fewer corporateacquisitions.

6. GOMPERS, P. A., ISHII, J. L. and METRICK, A., 2003, Corporate governance and equityprices. Quarterly Journal of Economics, 118, 107155.

7. MORCK, R., SHLEIFER, A. and VISHNY, R., 1989, Alternative mechanisms of corporate

control. American Economic Review, 79, 842852.8. WEISBACH, M. S., 1993, Corporate governance and hostile takeovers. Journal of

Accounting and Economics, 16, 199208.



17/19

9. FAMA, E. and JENSEN, M. C., 1983, Agency problems and residual claims. Journal of Lawand Economics, 26, 327350.

10. AGRAWAL, A. and KNOEBER, C. R., 1996, Firm performance and mechanisms to controlagency problems between managers and shareholders. Journal of Financial andQuantitative Analysis, 31, 377397.

11. BALIGA, B. R., MOYER, R. C. and RAO, R. S., 1996, CEO duality and firm performance:

Whats the fuss? Strategic Management Journal, 17, 4153.12. CONYON, M. J. and PECK, S. I., 1998, Board control, remuneration committees, and top

management compensation. Academy of Management Journal, 41, 146157.13. BLOOM, M. and MILKOVICH, G. T., 1998, Relationships among risk, incentive pay, and

organizational performance. Academy of Management Journal, 41, 283296.14. DALTON, D. R., DAILEY, C. M., ELLSTRAND, A. E. and JOHNSON, J. L., 1998, Meta-

analytic reviews of board composition, leadership structure, and financial performance.Strategic Management Journal, 19, 269290.

15. CORE, J. E., HOLTHAUSEN, R. W. and LARKER, D. F., 1999, Corporate governance, chiefexecutive officer compensation, and firm performance. Journal of Financial Economics,51, 371406.

16. HUTCHINSON, M. and GUL, F. A., 2004, Investment opportunity set, corporate

governance practices and firm performance. Journal of Corporate Finance, 10, 595614.17. FAMA, E. and JENSEN, M. C., 1983, Separation of ownership and control. Journal of Lawand Economics, 26, 301325.

18. JENSEN, M. C., 1988, Takeovers: their causes and consequences. Journal of EconomicPerspectives, 2, 2148.

19. JENSEN, M. C. and RUBACK, R. S., 1983, The market for corporate control: the scientificevidence. Journal of Financial Economics, 11, 550.

20. SHLEIFER, A. and VISHNY, R., 1997, A survey of corporate governance. Journal ofFinance, 52, 737783.

21. MORCK, R., SHLEIFER, A. and VISHNY, R., 1990, Do managerial objectives drive badacquisitions? Journal of Finance, 45, 3148.

22. DOUMA, S. and SCHREUDER, H., 1998, Economic Approaches to Organizations (New York:Prentice Hall).

23. BRICKLEY, J., COLES, J. and LINCK, J., 1999, What happens to CEOs after they retire?Evidence on career concerns and CEO incentives. Journal of Financial Economics, 52,341377.

24. HARFORD, J., 2003, Takeover bids and target directors incentives: retention, experience,and settling up. Journal of Financial Economics, 69, 5183.

25. HUGHES, J. P., LANG, W. W., LORETTA, J., MESTER, L. J., MOON, C. G. and PAGANO, M.S., 2003, Do bankers sacrifice value to build empires? Managerial incentives, industryconsolidation, and financial performance. Journal of Banking and Finance, 27, 417447.

26. BECHER, D. A. and CAMPBELL, T. L., 2003, Corporate governance of bank mergers.Working Paper, University of Delaware.

27. HIETALA, P., KAPLAN, S. N. and ROBINSON, D. T., 2003, What is the price of hubris?Using takeover battles to infer overpayments and synergies. Financial Management, 32,

531.28. DATTA, S., DATTA, M. I. and RAMAN, K., 2003, Value creation in corporate asset sales:

the role of managerial performance and lender monitoring. Journal of Banking andFinance, 27, 351375.

29. MALMENDIER, U. and TATE, G., 2003, Who makes acquisitions? CEO overconfidence andthe markets reaction. Working Paper, Stanford University.

30. ANDRADE, G. and STAFFORD, E., 2004, Investigating the economic role of mergers.Journal of Corporate Finance, 10, 136.

31. SHLEIFER, A. and VISHNY, R., 1988, Value maximization and the acquisition process.Journal of Economic Perspectives, 2, 720.

32. XIE, X., 2004, Efficiency and value creation in acquisitions and divestitures: evidencefrom the US property-liability insurance industry. Working Paper, Wharton School,

University of Pennsylvania.33. JENSEN, M. C., 1986, Agency costs of free cash flow, corporate finance, and takeovers.

American Economic Review, 76, 323329.



18/19

34. SHLEIFER, A. and VISHNY, R., 1989, Management entrenchment: the case of manager-specific investments. Journal of Financial Economics, 25, 123139.

35. ROLL, R., 1986, The hubris hypothesis of corporate takeovers. Journal of Business, 59,197216.

36. Past empirical research on corporate governance and merger implications for share-holder value has mainly concentrated on the banking industry that has been responsible

for the largest share of merger activity over the past decade.37. MULHERIN, J. H. and BOONE, A. L., 2000, Comparing acquisitions and divestitures.

Journal of Corporate Finance, 6, 117139.38. Dead weight tonnage (dwt) is the total weight that a ship can safely carry when fully

loaded. The size of tankers is usually expressed in deadweight tonnage.39. ALDERTON, P., 1995, Sea Transport Operation and Economics (London: Th. Reed

Publications).40. CYBO-OTTONE, A. and MURGIA, M., 2000, Mergers and shareholder wealth in European

banking. Journal of Banking and Finance, 24, 831859.41. MORCK, R., SHLEIFER, A. and VISHNY, R., 1988, Management ownership and market

valuation: an empirical analysis. Journal of Financial Economics, 20, 293315.42. JARRELL, G. A. and POULSEN, A. B., 1989, The returns to acquiring firms in tender offers:

evidence from three decades. Financial Management, 18, 1219.43. CARLINE, N. F., LINN, S. C. and YADAV, P. K., 2002, The influence of managerialownership on the real gains in corporate mergers and market revaluation of mergerpartners: empirical evidence. Working Paper, University of Oklahoma.

44. GOERGEN, M . a n d RENNEBOOG, L., 2003, Shareholder wealth effects of Europeandomestic and cross-border takeover bids. Working Paper, Tilburg University.

45. CONYON, M. and MURPHY, M., 2002, Stock based executive compensation. In:Corporate Governance Regimes Convergence and Diversity, edited by J. McCahery,P. Moerland, T. Raaijmakers, L. Renneboog (Oxford: Oxford University Press),pp. 125127.

46. Empirical evidence indicates that size, not performance, is the main determinant of thelevel of managerial salaries, bonuses and share options allotment in the UK.

47. BECHER, D. A., 2000, The valuation effects of bank mergers. Journal of CorporateFinance, 6, 189214.

48. ASQUITH, P., 1983, Merger bids, uncertainty, and stockholder returns. Journal ofFinancial Economics, 11, 5183.

49. Hou, K., Olsson, P. and Robinson, D. T., 2002, Does takeover increase stockholdervalue? Working Paper, Graduate School of Business, Columbia University.

50. CYREE, K. B. and DEGENNARO, R. P., 2002, A generalized method for detecting abnormalreturns and changes in systematic risk. Review of Quantitative Finance and Accounting,19, 399416.

51. LYON, J. D., BARBER, B. M. and TSAI, C. L., 1999, Improved methods for tests of long-run abnormal stock returns. Journal of Finance, 54, 165201.

52. WESTON, J. F., CHUNG, K. S. and SIU, J. A., 1998, Takeovers, Restructuring and CorporateGovernance (Englewood Cliffs, NJ: Prentice Hall).

53. Cumulative abnormal returns have been also calculated using an arithmetic or simpleprocess but results (not shown) were qualitatively similar for both target and bidderfirms.

54. HOUSTON, J. F. and RYNGAERT, M. D., 1994, The overall gains from large bank mergers.Journal of Banking and Finance, 18, 11551176.

55. Since financial data on Fortress, a private investment company, have not been available,this case has been excluded from the final discussion. Although not presented, theimplications for target firm shareholders have been assessed and are consistent with theempirical findings in the other two bid cases included.

56. Asymmetric [T1 T2] events windows were also examined, where T1 D J1), T2 D J2),J1 30, 20, 1 and 0 days and J2 5, 5, 0, 1 and 30 days. Results (not reported)were found to remain qualitatively similar to those produced in the symmetric event

windows.57. KOTHARI, S. and WARNER, J., 1997, Measuring long-horizon security price performance.

Journal of Financial Economics, 43, 301339.



19/19

58. LOWINSKI, F., SCHIERECK, D. and THOMAS, T. W., 2004, The effect of cross-borderacquisitions on shareholder wealth: evidence from Switzerland. Review of QuantitativeFinance and Accounting, 22, 315330.

59. DELONG, G. L., 2001, Stockholder gains from focusing versus diversifying bank mergers.Journal of Financial Economics, 59, 221252.

60. FRANKS, J. and MAYER, C., 1996, Hostile takeovers and the correction of managerial

failure. Journal of Financial Economics, 40, 163181.61. To test for the robustness of the empirical findings, CCARs were also weighted by

total assets of the target and bidder firms but results remain qualitatively similar (tables 5and 6).

62. JENSEN, M. C., 1993, The modern industrial revolution, exit, and the failure of internalcontrol systems. Journal of Finance, 48, 831880.

63. Some initial indications as to what is to follow on the corporate governance front includethe resignation of Stelmars CFO during merger negotiations, whereas action has beentaken to remove Stelmars Chairman and CEO.

64. STARKS, L. T. and WEI, K. D., 2004, Cross-border mergers and differences in corporategovernance. Working Paper, University of Texas.

65. CHEVALIER, J., 2000, What do we know about cross-subsidization? Evidence from the

investment policies of merging firms. Working Paper, University of Chicago.66. AMIHUD, Y. and LEV, B., 1981, Risk reduction as a managerial motive for conglomeratemergers. Journal of Economics, 12, 605617.

67. GMR received also a takeover bid by Frontline, a shipping company, during the sameperiod.

68. MITCHELL, M. L. and MULHERIN, J. H., 1996, The impact of industry shocks on takeoverand restructuring activity. Journal of Financial Economics, 41, 193229. Bid prices fortarget (Stelmar) are anticipated to have been positively influenced by the robust freightmarket over the takeover period. Although it may be difficult to empirically isolate theimpact of an upward shipping market on the bid premium, high freight earnings areexpected to push target stock priceand the bid priceupwards in an efficient stockmarket.

69. THEOTOKAS, J., 1998, Organizational and managerial patterns of Greek-owned shippingcompanies and the internationalization process from the post-war period to 1990.In: Global Markets: The Internationalization of the Sea Transport Industries since 1850,edited by D. J. Starkey and G. Harlaftis (Newfoundland: Research in Maritime HistoryNo. 14), pp. 303318.

70. HARLAFTIS, G. and THEOTOKAS, J., 2004, European family firms in international business:British and Greek tramp shipping firms. Business History, 46, 219255.

71. ARGO, 1998, Interview with Stelios Hajiioannou (in Greek), February, 1929.72. The present empirical finding cover the short run impact of the takeover bids and are

rather tentative. Solid conclusions on the post-merger performance can be drawn whenthe long run implications are evaluated capturing the full merger effect; this is typicallyrevealed after a three-year period following merger completion. Bidders in mergers havebeen shown to underperform in a three-year period following the acquisition.

73. RAU, P. and VERMAELEN, T., 1998, Glamour, value and the post-acquisition performanceof acquiring firms. Journal of Financial Economics, 49, 223253.

74. RANDOY, T ., DOWN, J. and JENSSEN, J. J., 2003, Corporate governance and boardeffectiveness in maritime firms. Maritime Economics and Logistics, 30, 4054. Theauthors conclude a positive influence of founding family CEOs on the financialperformance of maritime firms.

75. KAPOPOULOS, P. and LAZARETOU, S., 2006, Corporate ownership structure and firmperformance: evidence from Greek firms. Working Paper, Bank of Greece.


event study in shipping industry 6522 (1)

Documents