A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 5 resources
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Shareholder value creation from hedge fund activism occurs primarily by influencing takeover outcomes for targeted firms. Controlling for selection decisions, activist interventions substantially increase the probability of a takeover offer. Third-party bids for targets have higher returns, premia, and completion rates, but these patterns reverse when the activist is the bidder. Failed bids for activism targets lead to improvements in operating performance, financial policy, and positive long-term abnormal returns, suggesting that activism enhances value. The positive long-term performance from hedge fund activism arises from monitoring target management during merger and acquisition contests and not from target undervaluation or bidder overpayment.
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We quantify the impact of merger activity on productive efficiency. We develop and calibrate a dynamic industry-equilibrium model that features mergers, entry, and exit by heterogeneous firms. Mergers affect productivity directly through realized synergies, and indirectly through firms’ incentives to enter or exit the industry. Merger activity increases average firm productivity by 4.8%, of which 4.1% reflects the accumulation of synergies, and 0.7% the interaction between merger options and firms’ entry and exit decisions. We show that ignoring the implications of merger activity for public policies that promote entry can reverse the expected impact of these policies on productivity.
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Prior research finds that firms hire directors for their acquisition experience, regardless of acquisition quality (whether their prior acquisitions earned positive or negative announcement returns). Using several short- and long-run measures, we examine the effects of directors’ acquisition experience on the acquisition performance of firms hiring them. We find that board acquisition experience is positively related to subsequent acquisition performance, demonstrating that firms appropriately value experience. Beyond experience itself, however, the quality of directors’ prior acquisitions is also important. Our results suggest that firms may be better served to select directors based upon both past acquisition experience and acquisition performance.
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We investigate the role of industry specialization in horizontal cross-border mergers and acquisitions. We find that acquirers from more specialized industries in a country are more likely to buy foreign targets in countries that are less specialized in these same industries. The role of industry specialization in foreign acquisitions is more prevalent when contracting inefficiencies and exporting costs limit arm’s-length relationships. The economic gains in cross-border deals are larger when specialized acquirers purchase assets in less specialized industries. These results are consistent with an internalization motive for foreign acquisitions, through which acquirers can apply localized intangibles on foreign assets.
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I develop a model of mergers in which M&A deals are used to reallocate investment opportunities. In equilibrium, acquirers lack internal growth options and seek out projects from targets in the M&A market. The model is able to reconcile many features of the merger data that I document, including the high productivity, investment, and valuation of target firms. Furthermore, in my model, profitability is highly predictive of acquisition, and merger transactions naturally lead to a substantial drop in profitability despite creating value for the acquirer.