A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 29 resources
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Harford, J. (1999). Corporate Cash Reserves and Acquisitions. The Journal of Finance, 54, 1969–1997.
Cash‐rich firms are more likely than other firms to attempt acquisitions. Stock return evidence shows that acquisitions by cash‐rich firms are value decreasing. Cash‐rich bidders destroy seven cents in value for every excess dollar of cash reserves held. Cash‐rich firms are more likely to make diversifying acquisitions and their targets are less likely to attract other bidders. Consistent with the stock return evidence, mergers in which the bidder is cash‐rich are followed by abnormal declines in operating performance. Overall, the evidence supports the agency costs of free cash flow explanation for acquisitions by cash‐rich firms.
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One possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less‐developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially “unconstrained” buyers acquire “constrained” targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided company‐specific operational information, while the bidder provided capital‐budgeting expertise.
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Using 947 acquisitions during 1970-89, this article finds a relationship between the postacquisition returns and the mode of acquisition and form of payment. During a five-year period following the acquisition, on average, firms that complete stock mergers earn significantly negative excess returns of -25.0 percent whereas firms that complete cash tender offers earn significantly positive excess returns of 61.7 percent. Over the combined preacquisition and postacquisition period, target shareholders who hold on to the acquirer stock received as payment in stock mergers do not earn significantly positive excess returns. In the top quartile of target to acquirer size ratio, they earn negative excess returns.
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This article examines the motives underlying the payment method in corporate acquisitions. The findings support the notion that the higher the acquirer's growth opportunities, the more likely the acquirer is to use stock to finance an acquisition. Acquirer managerial ownership is not related to the probability of stock financing over small and large ranges of ownership but is negatively related over a middle range. In addition, the likelihood of stock financing increases with higher preacquisition market and acquiring firm stock returns. It decreases with an acquirer's higher cash availability, higher institutional shareholdings and blockholdings, and in tender offers.
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The current trend toward corporate focus reverses the diversification trend of the late 1960s and early 1970s. This article examines the value of diversification when many corporations started to diversify. The author finds no evidence that diversified companies were valued at a premium over single segment firms during the 1960s and 1970s. On the contrary, there was a large diversification discount during the 1960s but this discount declined to zero during the 1970s. Insider ownership was negatively related to diversification during the 1960s but, when the diversification discount declined, firms with high insider ownership were the first to diversify.