Financial characteristics of acquiring firms and their relation to the wealth effects of acquisition announcements

This paper examines the sources of value to acquiring firms to expand the understanding of mergers and acquisitions. The firmspecific rationale that motivate firms to acquire other firms are examined, along with how these rationale impact the shareholder wealth of acquiring firms when the acquisitions are announced. A logit regression model is utilized to compare financial characteristics of acquiring firms to those of non-acquiring firms. The relation of these characteristics to the shareholder wealth effects experienced by acquiring firms when they announce acquisitions is also examined. The results support hypotheses that firm size and cash-flow payout impact the decision to acquire. Capital structure, management performance, and cash-flow payout are related to the wealth effects of acquisition announcements. Better fitting models result when industry effects are controlled by measuring firm characteristics as relative deviations from industry values.     

Acquisitions in the biopharmaceutical IPO market: Collaboration,competition and co‐opetition

The present paper explores the little studied area concerning the acquisition of recent biopharmaceutical initial public offering firms. We examine the nature of the relationship between the acquiring firm and the acquired initial public offering firm prior to the acquisition and from the perspective of the resource‐based view. We find to some extent that firm specific‐resources affect the prospect that the firm will be acquired. Furthermore, our findings show that firms with more of these types of resources are likely to be acquired by firms engaged in co‐opetition rather than by firms engaged solely in collaboration, competition, or (to a limited extent) with no prior relationship.     

Wealth Effects of International Investments and Agency Problems for Korean Multinational Firms

This paper recognizes the recent surge in cross‐border investments by MNCs from newly industrialized countries and investigates the wealth effects of FDI announcements by Korean firms, which are the leading FDI providers in Asia. The empirical results indicate that for Korean MNCs: 1) cross‐border investments increase shareholder wealth; and 2) they do not obtain the firm‐specific technological advantages over international competitors. The paper also presents evidence that cross‐border investments do not increase shareholder wealth for the 30 largest chaebol‐affiliates, and that shareholder wealth losses are greater when corporate ownership is concentrated, as suggested by Shleifer and Vishny (1997) and La Porta et al. (1998, 2000) .     

Cross‐Border Merger & Acquisition Activity and Revealed Comparative Advantage in Manufacturing Industries

We estimate an important implication of oligopolistic international trade modeling for the predicted pattern of cross‐border mergers and acquisitions (M&As). Our core argument is that cross‐border M&As are, among other factors, driven by cross‐country differences in comparative advantage. We find strong evidence that acquiring firms operate in industries with a comparative advantage. We also report (less pronounced) evidence that this holds for target firms as well. We therefore add another explanation, rooted in international economics, to the industrial organization literature on M&As that emphasizes efficiency and strategic motives.     

Contracting Costs and Information Asymmetry Reduction in Cross‐Border M&A

This paper explores the contracting costs of conducting mergers and acquisitions (M&A), creates a theoretical model of the information asymmetry involved, and shows how buying firms employ several mechanisms to reduce such asymmetry. Extending prior literature, the paper examines these costs in both domestic and cross‐border settings using a sample of over 3000 M&A deals. I consider both the fees paid and the time required in the bargaining phase to be contracting costs, and model them simultaneously to help explicate their endogenous relationship. The results show that buyers in cross‐border deals are more likely to employ mechanisms to affect information asymmetry, while the employment of these mechanisms affects contracting costs. The results help to explain why cross‐border M&A are more costly yet more quickly executed. Finally, modelling the use and effects of the mechanisms is sufficient to explain the contracting cost differences between domestic and cross‐border M&A.     

Do Wages Rise or Fall Following Merger?*

This paper provides a systematic empirical analysis of the effects of merger and acquisition activity on profitability and firm‐level employee remuneration in the UK, using a specially constructed database for the period 1979–91. It finds that both profitability and wages rise following acquisition, and firms that merge within the same industry division experience larger increases in profitability and pay their workers higher wages than those engaged in unrelated acquisitions; i.e. in part, the result of an increase in the efficiency with which labour is used following related acquisition.     

Beyond profitability: effects of acquisitions on technical efficiency in the Italian pasta industry

Unlike traditional studies on the impact of ownership changes—which use either profitability measures or stock prices—this paper investigates the impact of acquisitions on acquired firms' technical efficiency. Using a panel of Italian firms in the pasta industry for the 1981–1997 period, I estimate a stochastic production frontier with exogenous factors affecting efficiency in a translog specification with non‐neutral technical progress. The main result is that acquired firms experience, within the 6 years period following the acquisition, an increase in technical efficiency of the order of 10%. This result is statistically significant and proves to be robust with respect to the inclusion of size and calendar year effects as explanatory variables of firms' inefficiency. These findings contribute to the debate on the welfare gains of ownership changes by providing evidence that mergers and acquisitions lead to cost savings, due to the reduction of acquired firms' X‐inefficiency. Copyright © 2002 John Wiley & Sons, Ltd.     

Corporate entrepreneurship and acquisitions: creating firm wealth

Acquisition is one way entrepreneurial firms have to capture the assets needed to achieve their strategic objectives. We investigate shareholder value creation of Spanish listed firms in response to announcements of acquisitions over the period 1991–2006. Similar to foreign markets, bidders earn insignificant average abnormal returns regardless of the pricing model used in the estimation procedure. When we relate these results to company and transaction characteristics our evidence suggests that the listing status of the target firm is a critical key in the strategic decision to acquire a company. This listing status effect is mainly associated with the fact that unlisted firms tend to be smaller and lesser–known firms, and thus suffer from a lack of competition in the market for corporate control. Consequently, the payment of lower premiums and the possibility of diversifying shareholders’ portfolios lead to unlisted firm acquisitions being viewed as value–orientated transactions which have major implications for managers.     

The consequences of private equity acquisitions for employees: new evidence on the impact on wages,employment and productivity

There is growing controversy on the HR consequences of private equity acquisitions, especially when the existing management team is replaced. Much of the debate thus far has centred on the use of limited panels of case studies and industry surveys. This article, in contrast, uses both in‐depth interviews with relevant stakeholders and objective company data to compare firms subject to private equity acquisitions against a control group of non‐acquired firms. Our interviews provide insights into key issues that are investigated in the subsequent empirical analysis. Our core findings are that firms subject to a specific type of private equity acquisition – institutional buyouts – are associated with job losses, lower wages and lower productivity. This evidence is consistent with the notion that this type of private equity acquisition has negative employment consequences without any corresponding improvement in productivity.     

Firm Productivity Moderated Link Between Human Capital and Compensation: The Significance of Task‐Specific Human Capital

The human capital of a firm as manifested by employee knowledge and experience represents a key resource of a firm's capabilities. Prior empirical studies have found that firms composed of high levels of human capital experience superior firm performance. Human capital theory proposes that an individual's general or firm‐specific human capital is positively related to compensation. However, empirical studies examining firm‐specific human capital's association with higher employee compensation have been inconclusive. The current study proposes that firm‐specific human capital be categorized as task‐specific and non‐task‐specific. Employees accumulate task‐specific human capital through duties conducted in their current position. Non‐task‐specific human capital represents experiences gained in prior positions to an employee's current job within the firm. Utilizing human capital data from 38,390 employees representing 76 firms in the IT sector, this study examines the association between forms of human capital and employee compensation at different levels of firm productivity. Results show that task‐specific human capital is associated with higher employee compensation. In addition, firm productivity moderates this association.     

The Roles of Chinese CEOs in Managing Individualistic Cultures in Cross-border Mergers and Acquisitions

The individualism-collectivism culture represents an important and well-researched distinction across cultures. Yet research is less clear about how the different levels of individualistic cultures in host countries affect the success of an increasingly important firm strategy – cross-border mergers and acquisitions (CBMAs). This study addresses this key research question in the context of Chinese firms’ CBMAs, as Chinese firms are increasingly acquiring targets outside of China in the New Normal global business landscape. This study further theorizes and tests how the Chinese acquirer CEOs’ characteristics moderate the wealth creation relationship. In an analysis of 404 Chinese firms’ CBMAs, we found that an individualistic culture in the host country is negatively associated with Chinese acquirers’ CBMA wealth creation. We also demonstrate that Chinese CEOs’ exposure to foreign culture and female gender weaken that negative relationship, while CEO duality strengthens this negative relationship. Our research thus suggests that culture in host countries can negatively affect acquirers’ CBMA performance, but CEOs may be able to manage the effects of the culture to increase their CBMA performance.     

Liberalising the German model: institutional change,organisational restructuring and workplace effects

Institutional change at supranational, European Union level affects national and firm level institutions in various ways. This article traces effects of liberalisation measures in the airport industry enacted in two airport firms in Germany. The study, based on qualitative empirical research, found that EU liberalisation facilitated company creation of subsidiaries (subsidiarisation) and elevated shareholder interest in corporate governance. These factors affected institutional practices and cultural norms within the German industrial context that in turn influenced significant alterations in employment and workplace relations. Considerable disruption of the German social partnership model of corporate governance and industrial relations was observed. However, in addition to patterns of convergence towards neoliberal practices and outcomes frequently observed in Anglo‐Saxon systems, the study found some elements of effective retention of cultural institutional resources of the German model. Both ‘path departure’ and social embeddedness appear to coexist.     

The competing risks of acquiring and being acquired: Evidence from Colombia's financial sector

This paper studies the determinants of the probability of participating in a process of merging or acquisition for financial institutions in Colombia. We use survival analysis techniques and competing risks models to estimate the probability of participating in such processes as an acquiring or acquired firm. Using an especially rich database containing financial information of Colombian banks for the period 1990–2007, we find that both macroeconomic and microeconomic variables are important determinants of this probability. However, there are differential effects for the acquiring firm and the acquired firm. Particularly, while firm size and solvency are significant determinants of the probability of being an acquiring firm, efficiency is an important determinant of the probability of being acquired. Also, the concentration index, which plays no role for acquiring firms, plays an important role in the probability of being acquired.     

Determinants of premiums in acquisition transactions

This paper presents a framework to identify the determinants of acquisition premiums so as to explain their cross-section variability. Observed premiums are predicted to be positively related to (1) the magnitude of the acquiring firm's estimate of acquisition gains and (2) the acquired firm's relative bargaining strength. Increased acquisition gains are argued to result from two sources—underpricing and undermanagement. The variables representing these sources are constructed from pre-acquisition data. A gains variable based on the post-acquisition stock-price reactions of the acquiring and acquired firm is also constructed. It is argued that acquired-firm bargaining strength is enhanced by an increase in the degree of competition in the acquisitions market and by the inclusion of anti-takeover amendments in the acquired firm's corporate charter. The predictions are tested on a sample of 77 completed cash-for-stock and stock-for-stock acquisitions over the time period 1975–80. The empirical results provide strong support for the predicted effects of the determinants of (2) and mixed support for the determinants of (1). This is the first study to document the predicted effects of anti-takeover amendments on observed premiums.     

In and Out of Balance: Industry Relatedness,Learning Capabilities and Post-Acquisition Innovative Performance

The existence of an inverted U-shaped effect of the relatedness between acquirer and acquired firm on the innovative performance subsequent to an acquisition is normally regarded as indicative of the existence of a trade-off between exploration and exploitation in external innovation search. We argue that acquirers endowed with heterogeneous learning capabilities can alter the shape of the trade-off to their favour. In particular, we focus on a notion of industry relatedness that captures the coherence between the domains of operation of the acquirer and the acquired firm. Using a longitudinal dataset of 1,736 domestic acquisitions in the Netherlands, we show that the heterogeneous learning capabilities of the acquirers alter the shape of the inverted-U relationship, according to first- and second-order moderating effects. Our results confirm that learning capabilities by internal R&D and by acquisition experience both improve what acquirers can achieve in innovative performance when industry relatedness is at the point of balance between exploration and exploitation. In contrast, they have opposite implications on the potential losses in innovative performance when industry relatedness is outside the point of balance: internal R&D increases the tolerance of the trade-off, smoothing out potential innovation losses, whereas acquisition experience reduces it.     

Acquisitions of bankrupt assets

Buyers of bankrupt assets could be penalized because of uncertainty about the value of such assets given their poor performance, and the absence of a guarantee offered by bankrupt estates. On the other hand, they could be rewarded if imperfections in the market for bankrupt assets result in deep discounts. In this paper, we assess 314 acquisitions of bankrupt assets over the period 1985–2006. We find that firms that acquire bankrupt assets experience significant positive valuation effects, suggesting that the market for bankrupt assets is imperfect. Second, the valuation effects are especially favorable when the acquisition is only of selected assets, and when the buyer is in the same industry as the bankrupt firm. No evidence of long run abnormal returns (above and beyond the initial valuation effects) is found for firms that acquire bankrupt assets.     

Broad Cross‐License Negotiations

In many industries, broad cross‐license agreements are considered a useful method to obtain freedom to operate and to avoid patent litigation. In this paper, I study firm incentives to sign a broad cross‐license as well as the duration of broad cross‐license negotiations. I develop a model of bargaining with learning, which predicts that two firms will enter a broad cross‐license agreement only if their capital intensities are large enough. The model also predicts faster negotiations when firms have high capital intensities and when the frequency of future disputes is low. I confirm these predictions empirically using a novel data set on cross‐licensing and litigation in the US semiconductor industry.     

Creditor protection,shareholder protection and investment efficiency: New evidence

Prior studies show significant effects of creditor rights and shareholder rights on corporate investment efficiency; however, they have not addressed how shareholder (creditor) rights influence the relationship between creditor (shareholder) rights and firm investment efficiency. With a research sample of 235,969 firm-years from 31,152 firms across 42 countries during the period 2002–2016, we find that the negative (positive) effect of creditor (shareholder) rights on corporate investment efficiency is stronger (weaker) in countries of strong shareholder (creditor) protection. In addition, our research findings show that both creditor rights and shareholder rights are less effective in investment efficiency during the global financial crisis. Firms in countries of strong shareholder (creditor) protection experience smaller (larger) decreases in the effectiveness of creditor (shareholder) rights.     

从国营到国有——国家股转让效果分析

本文系统地研究了从1997年到2000年在上海证券交易所和深圳证券交易所发生的国有资产局将控制权转让给国有独资企业和国有法人企业的案例数据。研究发现国家股控制权转让后公司业绩有了明显的改善,同时证券市场对国家股转让行为做出了积极的反应,产生了明显的超额收益。     

Acquirer Characteristics and Method of Payment: Evidence from Chinese Mergers and Acquisitions

This study examines the effects of acquirer characteristics on method of payment of Chinese acquirers on the basis of a sample of 1370 mergers and acquisitions that occurred between 1998 and 2008. Using both buy and hold abnormal returns and calendar time abnormal returns approaches, we find that Chinese acquirers experience pre‐acquisition abnormal returns ranging from 14.29% to 121% over the period of 12–36 months prior to the acquisition relative to three different portfolio benchmarks. In the pre‐bid period, acquisitions financed by shares outperform acquisitions financed by cash. However, in the post‐acquisition period, we document no significant difference between cash‐financed and equity‐financed acquisitions. The study also finds that acquirer market value, Tobin's Q, state ownership and leverage have significant effects on the method of payment. Copyright © 2013 John Wiley & Sons, Ltd.