Using a hand-collected dataset for takeovers from 1996 to 2013, I examine why some target firms obtain a second fairness opinion and the associated wealth effects of doing so. I find that multiple opinions are more likely to be used in deals in which management/investment bank conflicts of interest are high—e.g., buyouts and stapled financing deals. In addition, the use of a second opinion has a significantly positive impact on target shareholders' wealth in these two types of deals. Fairness opinion valuation predominantly relies on accounting data, and the benefit of seeking a second opinion increases with a firm's earnings quality. Collectively, the results suggest that a second opinion is used to facilitate transactions.

We study a random sample of completed and withdrawn takeovers during the 1981 to 2014 time period to provide new evidence on the role of takeover impediments such as poison pills, staggered boards and state antitakeover devices. Do such impediments act in the interest of management by promoting entrenchment or do they act in shareholder interest by improving bargaining power during the takeover auction process? We first confirm the growing trend of takeover impediments over time in our sample. We then relate these trends to changes in the takeover auction process over time. Although we corroborate prior findings of a decline in hostile takeovers and publicly reported takeover auctions between the 1980s and later time periods, we find that takeover competition across the entire auction process between deal initiation and completion has not declined. In effect, takeover competition via auctions has gone underground. Moreover, takeover premiums have not declined over time. We interpret the results to be consistent with the shareholder interest/bargaining power hypothesis and inconsistent with the management interest/entrenchment hypothesis. Our analysis highlights the usefulness of research sources for SEC merger documents including microfiche, Lexis Nexis and Thomson One Financial that provide historical information on the takeover auction process prior to the EDGAR filings that started in the mid-1990s.

We evaluate the over-valuation hypothesis and merger arbitrage price pressure hypothesis as potential explanations for the observed negative returns to stock acquirers around merger announcement. Using daily shorting flow data, we show that the majority of the negative announcement returns can be attributed to price pressure induced by merger arbitrage short selling. Additional analysis of shorting activity and associated returns for floating-exchange-ratio stock acquirers at deal closings and among withdrawn stock deals further supports merger arbitrage price pressure explanation. We also find merger arbitrage activity increases with estimated arbitrage spread on a daily basis. As a whole, the results suggest that merger arbitrageurs play a critical role in stock mergers.

We find evidence that aggregate funding conditions play an instrumental role in mergers and acquisitions (M&A). Funding conditions impact the benefits, participants and the number of deals transacted and this impact extends well beyond merger waves. Specifically, when aggregate funding conditions are favorable, the merger market is especially active and small, financially-constrained firms participate heavily. These same firms, however, are largely absent from the deal market when funding conditions are tight. Furthermore, investors view deals during favorable environments as relatively attractive, particularly if the deals are initiated by small bidders. In contrast, deals transacted by large firms during easy-money periods are viewed as value-destroying. We also document that these value-destroying deals are particularly prevalent among large bidders with significant potential for agency costs. Overall, our results suggest that aggregate funding conditions do not merely cause bidders to adjust the scope of their investment decisions consistent with capital rationing, but rather, the changing state of aggregate funding appears to significantly determine the size and composition of the M&A potential bidder pool.

Many academic studies use fixed preannouncement event days (e.g., -20,-42, or -63) to measure takeover premiums. In this paper, we show that the use of traditional fixed windows generates premiums that are underestimated by as much as 8 percentage points. This downward bias is especially severe for transactions with long processes (e.g., target-initiated deals). We take account of this bias by hand collecting deal initiation dates and show that using these dates results in measured premiums that give contradictory conclusions to those found in existing literature. We also offer guidance for measuring premiums if hand collecting data is impractical.

Despite the theoretical appeal of the importance of the uniqueness of firm relation in merger synergy creation, empirical evidence supporting this synergy source is limited. We examine the effect of the uniqueness of the bidder-target relationship, i.e., the number of firms that share the bidder-target relationship, on merger synergies. We use machine learning tools to measure unique bidder-target relatedness and find that unique relatedness is associated with a much larger increase in merger synergies than non-unique relatedness. The measure of unique relatedness mostly captures product relatedness, and this measure dominates alternative product relatedness measures in predicting merger synergies. Analysis of the acquirer's post-merger operating performance shows that the unique relatedness creates synergies through enhanced operating efficiency rather than increased investment or revenue.

This paper investigates the impact of institutional trading on SEO lead underwriter choice. We measure the trading intensity of the lead investment bank in several different ways and find that bank trading has a significant effect on underwriter choice. A bank that concentrates its trading in particular stocks has an improved probability of earning the underwriting mandate in those stocks. We also find that the trading intensity of the lead bank has a significant effect on SEO underpricing and the composition of the underwriting syndicate. We attribute these results to the fact that banks that are large and active traders in an issuer's stock have a competitive advantage in marketing to the current shareholder base. For smaller banks, we show that concentrating the bank's own trading in the issuer's stock produces similar effects.

We examine whether, how, and why acquirer shareholder voting matters. We show that acquirers with low institutional ownership, high deal risk, and high agency costs are more likely to bypass shareholder voting. Such acquirers have lower announcement returns and make higher offers than those who do not. To avoid a shareholder vote, acquirers increase equity issuance and cut payouts to raise the portion of cash in mixed-payment deals. Employing a regression discontinuity design, we show a positive effect on acquirer announcement returns concentrated in acquirers with higher institutional ownership. We conclude that shareholder voting mitigates agency problems in corporate acquisitions. Received April 18, 2017; editorial decision February 9, 2018 by Editor David Denis.

Using proprietary institutional trade data, we construct a price impact measure that represents the costs faced by institutional investors. We show that many widely used liquidity measures do not adequately capture institutional trading costs. We then find that institutional trading costs are not dramatically impacted by decimalization, casting doubt on the widely used identification strategy that employs decimalization as an exogenous shock to liquidity, particularly institutional liquidity. Indeed, we find that conclusions from prior research are significantly altered when we measure liquidity using institutional trading data.

Using unique data, this paper examines investment banks’ choice of peers in comparable companies analysis in mergers and acquisitions. We find strong evidence that product market space is amongst the most important factors in peer selection, but Standard Industrial Classification (SIC) codes, particularly three and four digit codes, do a poor job of categorizing related firms in this setting. Banks strategically select large, high growth peers with high valuation multiples, factors that are also positively related to premiums. Our evidence is consistent with target-firm advisors selecting peers with high valuation multiples to negotiate higher takeover prices.