Alexander S. Gorbenko

Professor of Finance

Department of Economics and School of Management, University College London

a.gorbenko@ucl.ac.uk

  Publications

We study strategic initiation of auctions by bidders and sellers. A bidder's decision to approach the seller reveals some of its info about the asset. In environments close to common-value (financial bidders in M&A), this erodes bidders' profits: they rarely approach, so auctions are seller-initiated. In environments close to private-value (strategic bidders in M&A), the effect reverses. The results are robust to auction format and preemptive bidding. Shareholder activism and toeholds lead to more bidder-initiated deals.

Awards: Outstanding Paper Award, Midwest Finance Association (Chicago), 2019

We estimate the impact of VC contracts on start-up outcomes and the split of value between entrepreneur and VC using novel data on first-round financing contracts and a novel empirical methodology. VCs typically use their bargaining power to receive more equity and additional terms (participation rights and board seats) than is optimal for the start-up. High-quality VCs benefit the start-up and entrepreneur, but not as much as theoretically possible, as they receive more investor friendly terms.

Differences among bidder type-specific outcomes of asset sales may be related to differences in average valuations, valuation dispersions, and participation. Empirically, the difference in takeover premiums by strategic and financial acquirers is driven by the difference in valuation dispersions (but not average valuations) and the number of bidders of each type. The empirical model is applicable to other asset sales with heterogeneous bidders.

We propose a dynamic model of M&A that connects bidders' financial constraints to their deal initiation, bids, and payment method. Because bidders can pay in stock, constraints do not affect their maximum willingness to pay. However, both own and rivals' constraints make a bidder delay deal initiation. In equilibrium, auctions are initiated by bidders with low constraints or high synergies. The use of cash is positively related to synergies, acquirer's gains, and negatively to constraints.

We estimate valuations of strategic and financial bidders in takeover auctions using novel data on private bids and a novel empirical methodology. Contrary to the traditional view, strategic bidders do not always have higher synergies and hence higher valuations than financial bidders: a quarter of the sample (mature, underperforming companies) are valued more by financial bidders. Strategic bidders are more heterogeneous (synergies are more unique) than financial bidders within auctions. 

Awards: NASDAQ OMX Award for the Best Paper on Asset Pricing, Western Finance Association (Las Vegas), 2012

We analyze auctions for the settlement of credit default swaps theoretically and show that the auction price might be either above or below the fair bond price, due to strategic bidding of auction participants. Empirically, undervaluation occurs in most cases: auctions undervalue bonds by an average of 6% on the auction day. Undervaluation is related positively to the amount of bonds exchanged in the second stage of the auction. We suggest modifications of the auction to minimize the underpricing.

We study simultaneous security-bid second-price auctions with competition among sellers for potential bidders. We show that there always exist equilibria in which auctions are in standard securities or their combinations. In large markets the unique equilibrium is auctions in pure cash. Binding reserve prices never constitute equilibrium as long as equilibrium security designs are not call options. 

Awards: Lead Article; The Best Paper Award, 13th Mitsui Symposium on Finance (University of Michigan), 2007

We simultaneously introduce both temporary and permanent cash flow shocks to a dynamic capital structure model. Consistent with stylized facts, in our framework, cash flows can be negative and are imperfectly correlated with firm value, and earnings volatility differs from asset volatility. Temporary shocks increase the importance of financial flexibility and may provide a simple and realistic explanation of empirically observed financial conservatism and low leverage phenomena.

 Working Papers