A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 10 resources
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Political and regulatory uncertainty is strongly negatively associated with merger and acquisition activity at the macro and firm levels. The strongest effects are for uncertainty regarding taxes, government spending, monetary and fiscal policies, and regulation. Consistent with a real options channel, the effect is exacerbated for less reversible deals and for firms whose product demand or stock returns exhibit greater sensitivity to policy uncertainty, but attenuated for deals that cannot be delayed due to competition and for deals that hedge firm-level risk. Contractual mechanisms (deal premiums, termination fees, MAC clauses) unanimously point to policy uncertainty increasing the target’s negotiating power.
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This paper studies how the conflict of interest between shareholders and creditors affects corporate payout policy. Using mergers between lenders and equity holders of the same firm as shocks to the shareholder-creditor conflict, I find that firms pay out less when there is less conflict between shareholders and creditors, suggesting that the shareholder-creditor conflict induces firms to pay out more at the expense of creditors. The effect is stronger for firms in financial distress.
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Although acquisitions are a popular form of investment, the link between firms’ financial constraints and acquisition policies is not well understood. We develop a model in which financially constrained bidders approach targets, decide how much to bid and whether to bid in cash or in stock. In equilibrium, financial constraints do not affect the identity of the winning bidder, but they lower bidders’ incentives to approach the target. Auctions are initiated by bidders with low constraints or high synergies. The use of cash is positively related to synergies and the acquirer’s gains from the deal and negatively to financial constraints.
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This paper studies whether director appointments to multiple boards impact firm outcomes. To overcome endogeneity of board appointments, I exploit variation generated by mergers that terminate entire boards and thus shock the appointments of those terminated directors. Reductions of board appointments are associated with higher profitability, market-to-book, and likelihood of directors joining board committees. The performance gains are particularly stark when directors are geographically far from firm headquarters. I conclude that the effect of the shocks to board appointments is: (i) evidence that boards matter; and (ii) plausibly explained by a workload channel: when directors work less elsewhere, their companies benefit.
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We construct a measure of the pairwise relatedness of firms’ human capital to examine whether human capital relatedness is a key factor in mergers and acquisitions. We find that mergers are more likely and merger returns and postmerger performance are higher when firms have related human capital. These relations are stronger or only present in acquisitions where the merging firms do not operate in the same industries or product markets. Reductions in employment and wages following mergers with high human capital relatedness suggest that the merged firm has greater ability to layoff low quality and/or duplicate employees and reduce labor costs. We further show in a falsification test that human capital relatedness has no effect on acquiring firm returns in asset sales when little or no labor is transferred, which helps validate our measure of human capital relatedness.
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If opportunistic acquirers can buy targets using overvalued shares, then there is an inefficiency in the merger and acquisition (M&A) market: the most overvalued rather than the highest-synergy bidder may buy the target. We quantify this inefficiency using a structural estimation approach. We find that the M&A market allocates resources efficiently on average. Opportunistic bidders crowd out high-synergy bidders in only 7% of transactions, resulting in an average synergy loss equal to 9% of the target’s value in these inefficient deals. The implied average loss across all deals is 0.63%. Although the inefficiency is small on average, it is large for certain deals, and it is larger when misvaluation is more likely. Even when opportunistic bidders lose the contest, they drive up prices, imposing a large negative externality on the winning synergistic bidders.
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We examine whether, how, and why acquirer shareholder voting matters. We show that acquirers with low institutional ownership, high deal risk, and high agency costs are more likely to bypass shareholder voting. Such acquirers have lower announcement returns and make higher offers than those who do not. To avoid a shareholder vote, acquirers increase equity issuance and cut payouts to raise the portion of cash in mixed-payment deals. Employing a regression discontinuity design, we show a positive effect on acquirer announcement returns concentrated in acquirers with higher institutional ownership. We conclude that shareholder voting mitigates agency problems in corporate acquisitions.
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We propose a novel approach for measuring returns to mergers. In a new data set of close bidding contests, we use losers’ post-merger performance to construct the counterfactual performance of winners had they not won the contest. Stock returns of winners and losers closely track each other over the 36 months before the merger, corroborating our identification approach. Bidders are also very similar in terms of Tobins q, profitability, and other accounting measures. Over the 3 years after the merger, however, losers outperform winners by 24%. Commonly used methodologies, such as announcement returns, fail to identify acquirer underperformance.
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This article studies the effect of cash windfalls on the acquisition policy of companies. As identification, I use a German tax reform that permitted firms to sell their equity stakes tax free. Companies that could realize a cash windfall by selling equity stakes see an increase in the probability of acquiring another company by 14%. I find that these additional acquisitions destroy firm value. Following the tax reform, affected firms experience a decrease of 1.2 percentage points in acquisition announcement returns. These effects are stronger for larger cash windfalls. My findings are consistent with the free cash flow theory.
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Because firms’ takeover motives are unobservable to investors, mergers are only partially anticipated and often appear as mixed blessings for acquirers. I construct and estimate a model to study the causes and consequences of bid anticipation and information revelation in mergers. Controlling for the market’s reassessment of the acquirer’s stand-alone value, I estimate that acquirers gain 4% from a typical merger. The total value of an active merger market averages 13% for acquirers, part of which is capitalized in their pre-merger market values. My model also explains the correlation between announcement returns and firm characteristics, as well as the low predictability of mergers.