A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 9 resources
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We represent the economy as a network of industries connected through customer and supplier trade flows. Using this network topology, we find that stronger product market connections lead to a greater incidence of cross-industry mergers. Furthermore, mergers propagate in waves across the network through customer-supplier links. Merger activity transmits to close industries quickly and to distant industries with a delay. Finally, economy-wide merger waves are driven by merger activity in industries that are centrally located in the product market network. Overall, we show that the network of real economic transactions helps to explain the formation and propagation of merger waves.
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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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Using a large and unique patent-merger data set over the period 1984 to 2006, we show that companies with large patent portfolios and low R&D expenses are acquirers, while companies with high R&D expenses and slow growth in patent output are targets. Further, technological overlap between firm pairs has a positive effect on transaction incidence, and this effect is reduced for firm pairs that overlap in product markets. We also show that acquirers with prior technological linkage to their target firms produce more patents afterwards. We conclude that synergies obtained from combining innovation capabilities are important drivers of acquisitions.
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Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one-for-one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Large-sample tests support rational deal anticipation in runups while rejecting the costly feedback loop.
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q-based measures of the diversification discount are biased upward by mergers and acquisitions and its accounting implications. Under purchase accounting, acquired assets are reported at their transaction value, which typically exceeds the target's pre-merger book value. Thus, measured q tends to be lower for the merged firm than for the portfolio of pre-merger entities. Because conglomerates are more acquisitive than focused firms, their q tends to be lower. To mitigate this bias, I subtract goodwill from the book value of assets and a substantial part of the diversification discount is eliminated. Market-to-sales-based measures do not have this bias.
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This article investigates the effect of social ties between acquirers and targets on merger performance. We find that the extent of cross-firm social connection between directors and senior executives at the acquiring and the target firms has a significantly negative effect on the abnormal returns to the acquirer and to the combined entity upon merger announcement. Moreover, acquirer-target social ties significantly increase the likelihood that the target firm׳s chief executive officer (CEO) and a larger fraction of the target firm׳s pre-acquisition board of directors remain on the board of the combined firm after the merger. In addition, we find that acquirer CEOs are more likely to receive bonuses and are more richly compensated for completing mergers with targets that are highly connected to the acquiring firms, that acquisitions are more likely to take place between two firms that are well connected to each other through social ties, and that such acquisitions are more likely to subsequently be divested for performance-related reasons. Taken together, our results suggest that social ties between the acquirer and the target lead to poorer decision making and lower value creation for shareholders overall.
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To examine the market response to positive revelations of chief executive officer (CEO) quality, this study focuses on CEOs who withdraw acquisition bids when the price becomes increasingly expensive. Firms that withdrawal for price-related reasons earn higher withdrawal returns than firms that withdraw for other reasons. This relation is stronger when CEO uncertainty and discretion is high. CEOs unwilling to increase the offer price are less likely to be replaced and more likely to advance to a larger firm than a control group of CEOs. The finding that the market attaches value to CEO-specific information suggests that unobservable manager characteristics can meaningfully impact firm outcomes.
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Contrary to earlier studies, we find that prior client performance is a significant determinant of the likelihood that an investment bank will be chosen as the advisor by future acquirers and of the changes through time in banks' shares of the advisory business. Further, the changes in the market values of acquirers at the announcement of acquisition attempts are positively correlated with contemporaneous changes in the market values of their advisors. Two implications arise: (1) acquirers consider advisors' prior client performance when choosing their advisors and (2) market forces work to align advisors' and clients' interests in the acquisition market.
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I document sources of value creation in mergers by analyzing novel data on the quality and price of goods sold by merging firms. When two competitors in a product market merge, their products converge in quality, and prices fall relative to the competition. These effects take two to three years to be fully realized and are stronger in mature industries. Prices do not fall, however, when the acquirer is diversifying into a new product market. This direct evidence of real changes induced by merger activity is consistent with consolidation by related merging firms to achieve operational efficiencies and lower costs.
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Journals
Topic
- Mergers and Acquisitions
- CEO (2)
- Director (1)
Resource type
- Journal Article (9)