A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 243 resources
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We propose a novel approach for measuring returns to mergers. In a new data set of close bidding contests, we use losers’ post-merger performance to construct the counterfactual performance of winners had they not won the contest. Stock returns of winners and losers closely track each other over the 36 months before the merger, corroborating our identification approach. Bidders are also very similar in terms of Tobins q, profitability, and other accounting measures. Over the 3 years after the merger, however, losers outperform winners by 24%. Commonly used methodologies, such as announcement returns, fail to identify acquirer underperformance.
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Using the longest event window, we find that public target shareholders receive a 63% (14%) higher premium when the acquirer is a public firm rather than a private equity firm (private operating firm). The premium difference holds with the usual controls for deal and target characteristics, and it is highest (lowest) when acquisitions by private bidders are compared to acquisitions by public companies with low (high) managerial ownership. Further, the premium paid by public bidders (not private bidders) increases with target managerial and institutional ownership.
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Firms have an incentive to manage media coverage to influence their stock prices during important corporate events. Using comprehensive data on media coverage and merger negotiations, we find that bidders in stock mergers originate substantially more news stories after the start of merger negotiations, but before the public announcement. This strategy generates a short-lived run-up in bidders' stock prices during the period when the stock exchange ratio is determined, which substantially impacts the takeover price. Our results demonstrate that the timing and content of financial media coverage may be biased by firms seeking to manipulate their stock price.
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Does CEO overconfidence help to explain merger decisions? Overconfident CEOs over-estimate their ability to generate returns. As a result, they overpay for target companies and undertake value-destroying mergers. The effects are strongest if they have access to internal financing. We test these predictions using two proxies for overconfidence: CEOs' personal over-investment in their company and their press portrayal. We find that the odds of making an acquisition are 65% higher if the CEO is classified as overconfident. The effect is largest if the merger is diversifying and does not require external financing. The market reaction at merger announcement (-90 basis points) is significantly more negative than for non-overconfident CEOs (-12 basis points). We consider alternative interpretations including inside information, signaling, and risk tolerance.
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We examine the conflicts of interest and the flow of information between divisions of financial institutions. Using data on analyst recommendations and stockholdings of investment banks advising acquirers in mergers, we find evidence that information from investment banking flows to other divisions of the bank. Specifically, following a merger announcement, changes in a bank's stockholdings of the acquirer are positively associated with changes in recommendations by its analyst. This relationship, however, does not exist before the merger announcement. Additional tests show that the relationship between stockholdings and recommendations following a merger announcement is strongest when conflicts of interest for analysts are likely the smallest.
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We study benefits received by target chief executive officers (CEOs) in completed mergers and acquisitions. Certain target CEOs negotiate large cash payments in the form of special bonuses or increased golden parachutes. These negotiated cash payments are positively associated with the CEO's prior excess compensation and negatively associated with the likelihood that the CEO becomes an executive of the acquiring company. Regression estimates suggest that target shareholders receive lower acquisition premia in transactions involving extraordinary personal treatment of the CEO. Target CEOs experience very high turnover rates both at the time of acquisition and, for those who remain employed, for several years thereafter. Copyright 2004, Oxford University Press.
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Minority acquisitions, involving less than 50% of the target, represent a distinct organizational choice. Minority acquisition can mitigate some of the incentive problems that arise in contractual relationships. Less is known, however, about the trade-off between minority acquisitions and complete integration. We find that minority acquisitions are more common when keeping target managerial incentives intact is important and when the target is financially constrained or can benefit from certification. Minority acquisitions are also more likely when the target's valuation is especially uncertain; integrating internal capital markets will be costly; and consolidating earning will lower earnings per share (EPS).
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We study shareholder returns for firms that acquired five or more public, private, and/or subsidiary targets within a short time period. Since the same bidder chooses different types of targets and methods of payment, any variation in returns must be due to the characteristics of the target and the bid. Results indicate bidder shareholders gain when buying a private firm or subsidiary but lose when purchasing a public firm. Further, the return is greater the larger the target and if the bidder offers stock. These results are consistent with a liquidity discount, and tax and control effects in this market.
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Journals
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- Mergers and Acquisitions
- CEO (23)
- Director (5)
- Capital Structure (2)
- Bond (2)
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- Journal Article (243)
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Between 1900 and 1999
(88)
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