A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 4 resources
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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.
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Announcements of stock-financed mergers and acquisitions (M&As) may attract short selling of bidder shares by merger arbitrageurs. We hypothesize that bidders with higher short-selling potential include a higher proportion of cash in their M&A payments to mitigate stock price declines resulting from arbitrage short sales. Consistent with this hypothesis, we find that the ex ante net lending supply of bidder shares has a positive impact on the percentage of cash in public target payments. Further tests, including a placebo analysis of public-to-private deals and an analysis of expected price pressure proxies, corroborate the impact of anticipated arbitrage-related price pressure on payment choice.
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Theory predicts that horizontal acquisitions can effectively increase incumbent firms’ market power in concentrated industries with high product similarity. Using a novel measure for industry product similarity, we show that in such industries firms’ propensity to make horizontal acquisitions is greater and that the acquisitions result in more positive announcement returns for the acquirer and rival firms and in a larger premium paid for the target. Also, the deals harm dependent customer and supplier firms and they are more likely to be challenged by antitrust authorities. Overall, by emphasizing the importance of product similarity, our results help explain mixed empirical findings on whether horizontal acquisitions are used to reduce competition intensity.
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We examine the impact of creditor control rights on corporate acquisitions. Nearly 75 of loan agreements include restrictions that limit borrower acquisition decisions throughout the life of the contract. Following a financial covenant violation, creditors use their bargaining power to tighten these restrictions and limit acquisition activity, particularly deals expected to earn negative announcement returns. Firms that do announce an acquisition after violating a financial covenant earn 1.8 higher stock returns, on average, and do not pursue less risky deals. We conclude that creditors use contractual rights and the renegotiation process to limit value-destroying acquisitions driven by managerial agency problems.