demutualization determinants and consequences of the mutual.pdf

Demutualization: Determinants and consequences of the mutual holding company choice Kenneth A. Carowa,* b b , Steven R. Cox , Dianne M. Roden a Kelley School of Business, Indiana University, 801 West Michigan Street, Indianapolis, IN 46202, USA b Indiana University Kokomo, 2300 South Washington Street, Kokomo, IN 46904, USA January 2 1, 2009 _____________________________________________________________________________ Abstract We investigate the determinants and consequences of the mutual holding company (MHC) structure that allows mutual thrifts to issue stock to outside shareholders while maintaining the mutual form. Capital constrained firms with greater profit opportunities are more likely to choose a full demutualization; demonstrating that the MHC choice can be used to control for over- and under-investment costs. During periods of greater regulatory constraints, MHC firms have lower offer-day returns than full demutualizations. MHC firms are also less likely to be acquired as the MHC structure provides protection from the market for corporate control. Demonstrating a clear preference by minority shareholders for the elimination of the MHC structure, the announcement of a second-stage conversion generates a 12 percent return. JEL classification : G21 Keywords : Mutual holding company; Thrifts; Event study; IPO; Conversion ______________________________________________________________________________ * Corresponding author. Tel.: +1 317 274 2783; fax: +1 317 274 3312. E-mail addresses: kcarow@iupui.edu (K.A. Carow), scox@iuk.edu (S.R. Cox), droden@iuk.edu (D.M. Roden) This paper was originally submitted to Professor Giorgio Szego on August 15, 2007 an