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 find strong evidence that three key dimensions of national culture (trust, hierarchy, and individualism) affect merger volume and synergy gains. The volume of cross-border mergers is lower when countries are more culturally distant. In addition, greater cultural distance in trust and individualism leads to lower combined announcement returns. These findings are robust to year and country-level fixed effects, time-varying country-pair and deal-level variables, as well as instrumental variables for cultural differences based on genetic and somatic differences. The results are the first large-scale evidence that cultural differences have substantial impacts on multiple aspects of cross-border mergers.
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We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO׳s personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO׳s position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.
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Managers often claim that target firms are financially constrained prior to being acquired and that these constraints are eased following the acquisition. Using a large sample of European acquisitions, we document that the level of cash that target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline, while investment increases following the acquisition. These effects are stronger in deals that are more likely to be associated with financing improvements. Our findings suggest that acquisitions relieve financial frictions in target firms, especially when the target firm is relatively small.
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Firm fixed effects alone explain as much of the variation in acquirer returns as all the firm- and deal-specific characteristics combined. An interquartile range of acquirer fixed effects is over 6%, comparable to the interquartile range of acquirer returns. Acquirer returns persist over time, but mainly at the top end of the distribution. Persistence continues under different chief executive officers (CEOs), and attributes of the broader management team do not explain the fixed effect. Firm-specific heterogeneity in acquirer returns suggests that some organizations are extraordinary acquirers irrespective of the leadership at the top and the deal structures they choose. Implications for the M&A research are discussed.
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This paper explores the impact of target CEOs’ retirement preferences on takeovers. Using retirement age as a proxy for CEOs’ private merger costs, we find strong evidence that target CEOs’ preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65. Takeover premiums and target announcement returns are similar for retirement‐age and younger CEOs, implying that retirement‐age CEOs increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals at retirement age.
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This paper examines the outcomes and characteristics of corporate acquisitions from the perspective of stakeholder-shareholder agency conflicts. Using state variation in labor protections, we find that acquirers with strong labor rights experience lower announcement returns. Combined acquirer and target announcement returns are also lower in the presence of strong labor rights. Our findings remain statistically and economically significant after we control for a range of deal, firm, industry and state characteristics and explore various channels for the labor rights effect. Overall, the evidence indicates that employee-shareholder conflicts of interest reduce shareholder gains from acquisitions.
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We study how differences in bank regulation influence cross‐border bank acquisition flows and share price reactions to cross‐border deal announcements. Using a sample of 7,297 domestic and 916 majority cross‐border deals announced between 1995 and 2012, we find evidence of a form of “regulatory arbitrage” whereby acquisition flows involve acquirers from countries with stronger regulations than their targets. Target and aggregate abnormal returns around deal announcements are positive and larger when acquirers come from more restrictive bank regulatory environments. We interpret this evidence as more consistent with a benign form of regulatory arbitrage than a potentially destructive one.
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Tender offers provide the advantage of substantially faster completion times than mergers. However, a tender offer signals to the target higher demand for its shares and raises its reservation price. In equilibrium, bidders tradeoff speed and cost. Consistent with this theory, we show that deals in more competitive environments and deals with fewer external impediments on execution are more likely to be structured as tender offers. Tender offers also require higher premiums than mergers. Finally, the rivals of the bidding firm realize significantly lower announcement returns and subsequent operating performance in tender offers than in mergers.
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Finance theory predicts that board independence is not always in the shareholders׳ interest. in situations in which board advice is more important than monitoring, independence can decrease firm value. I test this prediction by examining the connection between takeover returns and board friendliness, using social ties between the CEO and board members as a proxy for less independent boards. I find that social ties are associated with higher bidder announcement returns when the potential value of board advice is high, but with lower returns when monitoring needs are high. The evidence suggests that friendly boards can have both costs and benefits, depending on the company׳s specific needs.