The effect of mergers and acquisitions on environmental,social and governance performance and market value: Evidence from EU acquirers

This study explores the effect of environmental, social, and governance (ESG) performance on market value and performance in the context of mergers and acquisitions. We examine whether acquisition of targets with better ESG performance can help acquirers to increase their own ESG performance and whether the market values the increased ESG performance positively. Moreover, we explore whether the acquisition of targets with better ESG performance affects the market value of acquirers. For this study, we utilize a sample of 100 European mergers and acquisitions between 2003 and 2017, for which matching data on the ESG performance of both the target and acquiring firms are available. Our results show that the postmerger ESG performance of the acquirer increases following the acquisition of a target that has higher ESG performance than that of the acquirer in the premerger stage, whereas the postmerger market value of the acquirer increases following an increase in the acquirer's postmerger ESG performance in relation to its premerger ESG performance. Finally, we provide partial evidence of a positive relationship between the postmerger market value of the acquirer and the acquisition of a target with higher ESG performance than itself in the premerger stage.     

Investment banks advising takeover targets

Should takeover target firms hire top-tier investment bank advisors? For a sample of mergers and acquisitions between publicly traded U.S. acquirers and targets, in deals in which targets hire top-tier banks, targets earn higher premiums and abnormal returns; the probability of stock payment is lower, especially when bidder stock is potentially overvalued; acquirers, however, do not necessarily earn lower abnormal returns, and combined returns are higher. Controlling for self-selection does not erode, but, in some cases even strengthens the results. The evidence suggests that top-tier investment banks advising targets benefit shareholders of client firms by making better deals, instead of simply bargaining against the acquirers. The findings shed light on the role of advisor incentives when linking advisor quality and shareholder wealth.     

Acquiring firms' stock returns: Methods of payment,change in leverage,and management ownership

This study examines the effects of the method of payment, change in leverage, and management equity ownership on the acquiring firm's stock returns around the initial announcement date of the merger. Results indicate that stockholders of mergers financed with stocks suffer significant losses. These losses are larger when management ownership is low and smaller in mergers that resulted in acquiring firm leverage decreases. Stockholders of acquiring firms involved in cash mergers gain significant abnormal returns, provided that acquiring firms increase their leverage and that managerial ownership is high. When management equity ownership is low, leverage has no effect on stock returns. When management ownership is high, mergers which resulted in acquiring firm leverage increases have significant positive effects, and those which resulted in acquiring firm leverage decreases have negative but insignificant effects.     

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.     

Influence of acquirer boards on M&A value creation: Evidence from Continental Europe

We examine how the size and the composition of acquirer boards are associated with shareholder abnormal returns for 2,230 M&As made by listed firms in Continental Europe. Although board size proves insignificant, our findings do offer some evidence as to a beneficial effect of board diversity on M&A value creation. Gender diversity appears marginally positively associated with acquirer shareholder abnormal returns. The fraction of foreign directors is in general not significantly positive, unless the rule of law in the acquirer country is weak. Nonetheless, nationality diversity in the board turns out harmful in purely domestic takeovers. The influence of age diversity is marginally positive, yet only in domestic and horizontal takeovers. Next, the fraction of independent directors has a robust positive effect on the acquirer CAR, while directors with multiple board appointments prove valuable especially through preventing firms from pursuing poor takeovers. Finally, CEO duality is detrimental only in industry‐diversifying deals initiated by acquirers that are not controlled by an individual or a family shareholder. Any negative CEO‐duality effect is mitigated when the acquirer‐country rule of law is strong.     

Location,Proximity, and M&A Transactions

In this paper, we examine how the geographic location of firms affects acquisition decisions and value creation for acquirers in takeover transactions. We find that firms located in an urban area are more likely to receive a takeover bid and complete a takeover transaction as a target than firms located in rural areas, and takeover deals involving an urban target are associated with higher acquirer announcement returns, after controlling for the proximity between the target and the acquirer. In addition, a target's urban location significantly attenuates the negative effect of a long distance between the target and the acquirer on acquirer returns, a fact that is documented in the existing literature. Our findings reveal a previously underexplored force—firm location—that can affect takeover transactions, in addition to proximity. Our paper suggests that a firm's location plays an important role in facilitating the dissemination of soft information and enhancing information‐based synergies.     

Determinants of the method of payment in mergers and acquisitions

We empirically investigate the determinants of the payment form in mergers and acquisitions and introduce new variables on the target and acquirer investment characteristics to evaluate whether the concerns of target and acquirer shareholders are taken into account. Our sample encompasses mergers between publicly listed US companies from 1985 to 2004. Similarly we also consider the determinants of announcement returns using the same set of variables. We establish the relevance of a previously unreported variable for the determination of the payment form, the correlation of returns between target and acquirer, besides the more established determinants hostile takeovers, and defence mechanisms; weak evidence is found for the significance of budget constraints and no evidence for asymmetric information or tax considerations being a relevant factor. We do not find that announcement returns are explained by the variables considered.     

Defensive acquisitions in the banking industry: The takeover premium hypothesis

We define defensive acquisitions as takeovers made by a firm so as to become so large that it becomes an unattractive target itself. A sample of defensive acquisitions in the banking industry is used to test the takeover premium hypothesis. Under this hypothesis, the defensive acquirers lose because a takeover premium that previously existed in their prices is deflated while the takeover premium increases for smaller competitors because they become more likely targets. We find that the defensive acquirers experience significant negative abnormal returns on the announcement day, and that smaller competitors have positive abnormal returns on the announcements of defensive acquisitions. In contrast, larger competitors do not react to the announcements. The results are consistent with the takeover premium hypothesis.     

International acquisitions in the united states: Evidence from returns to foreign bidders

This paper provides evidence on the minimally explored topic of abnormal returns earned by stockholders of foreign bidders seeking to acquire a target firm in the USA. Four sources of influence on abnormal returns are identified: changes in net wealth of the bidder associated with changes in exchange rates; possible value-destroying managerial discretionary behavior by bidders with excess cash flows, as suggested by Jensen; comparative advantages for foreign bidders domiciled in relatively favorable tax jurisdictions; ownership status of the target, i.e. whether the target is an entire firm and whether it involves divested assets. The study includes 77 firms from 10 countries. The results show that stockholders of foreign bidders earn significant, negative abnormal returns surrounding the announcement of an acquisition in the USA. These abnormal returns become increasingly negative over the 15 days after the announcement of the acquisition, indicating that more information about the acquisition is revealed to investors subsequent to the initial announcement. Cross-sectional regressions indicate that relative exchange rates and cash positions explain variation in abnormal returns. A decline in the value of the dollar increases abnormal returns for the foreign bidder, thus supporting the net wealth hypothesis. The results also show that cash-rich foreign firms tend to enjoy higher abnormal returns when making acquisitions in the USA. The result provides support for the Froot and Stein cash-constrained hypothesis rather than for Jensen's free-cash-flow theory.     

并购交易特征与并购绩效——基于后股权分置时代中国上市公司的经验数据

本文基于后股权分置时代中国资本市场的制度背景,选取以上市公司为并购主体的并购交易为样本,研究了并购交易特征对企业并购短期绩效的影响。研究结论表明,采取现金支付的并购绩效高于股票支付的并购绩效;股权收购的并购绩效高于资产收购的并购绩效;并购交易相对规模与并购绩效负相关;同行业并购有利于并购绩效的提升。本文的研究结论既可以为证券市场提高资源配置效率提供重要依据,也可以为规范我国上市公司的并购行为提供重要参考,同时还可以为投资者和并购参与者提供经验认识。     

Effects of Industry‐ and Region‐Specific Acquisition Experience on Value Creation in Cross‐Border Acquisitions: The Moderating Role of Cultural Similarity

Based on a sample of 222 cross‐border acquisitions by US firms in the service sector, our study examines the effects of acquiring firms' prior cross‐border acquisition experience in the same industry and geographic region as the acquired firm on shareholder value creation. Using the BHAR (buy‐and‐hold abnormal returns) methodology, we find that higher levels of industry‐specific and region‐specific acquisition experience translate into greater shareholder value creation for acquiring firms in subsequent acquisitions. In addition, our results indicate that the effects of industry‐specific acquisition experience on acquisition performance are contingent on the level of cultural similarity between the acquiring and acquired firm countries, with the benefits of prior experience being greater in acquisitions undertaken in culturally similar countries. We also find that the moderating effects of cultural similarity on the relationship between industry‐specific acquisition experience and value creation are contingent on the level of prior region‐specific acquisition experience possessed by the acquiring firm.     

Financial constraints and synergy gains from mergers and acquisitions

This paper examines mergers and acquisitions motivated by financial constraints. Synergy gain is measured as the cumulative abnormal return of a value‐weighted portfolio of the acquirer and the target around the acquisition announcement. By constructing a financial constraint difference between the target and the acquirer, we find a positive relationship between the financial constraint difference and synergy gains generated from the acquisition. The positive effect of the financial constraint difference is only significant for high growth targets and severely constrained targets. The acquirer's corporate governance also enhances the synergy gains created from the financial constraint difference. Additional evidence shows that both acquirer's and target's shareholders benefit from the financial constraint difference. Our results are robust for different measures of financial constraint.     

Consolidation in the financial services industry: Are there industry gains for acquisitions of security firms?

We examine the revaluation of target security firms, their respective acquirers, both banks and non-banks, and their corresponding rivals before and after the major consolidation wave of 1994 to 1997. We find that target security firms as well as their respective acquirers are favorably revalued at the time of their acquisitions. The valuation effects are more favorable for non-bank acquirers and for acquirers with more growth potential and a lower degree of financial leverage. This suggests that investors expect greater synergies for mergers by better capitalized, faster growing, non-bank acquirers. In contrast to previous merger studies that generally find negative wealth effects for acquiring firms, cumulative abnormal returns (CARs) are on average positive for acquirers, targets, and portfolios of competing security firms, with the highest positive CARs for targets.     

The Predictive Value of Earnings, Cash flows and Accruals in the Period Surrounding the Asian Financial Crisis: Evidence from Hong Kong, Malaysia, Singapore and Thailand

This paper examines the predictive value of earnings, operating cash flows and accruals in Hong Kong, Malaysia, Singapore and Thailand for the period 1994–2001. We also examine the impact of the Asian financial crisis of 1997 on the predictive power of the accounting performance measures. We regress future cash flows and future excess returns on earnings (or cash flows and accruals) for the periods 1994–1996 (pre‐crisis period), 1997–1998 (crisis period) and 1999–2001 (post‐crisis period). Our findings indicate that the accounting measures have explanatory power for 1‐year ahead cash flows. Our analyses of 1‐year ahead excess returns indicate that investors may have undervalued the accounting measures in the pre‐ and post‐crisis periods, and overvalued the measures during the crisis period.     

The long-term success of M&;A in the automotive supply industry: determinants of capital market performance

In the recent past, the automotive supply industry has been facing increasing merger activity. This paper examines the short- and long-term wealth effects of horizontal mergers and acquisitions on acquirers in the automotive supply industry. Based on a sample of 230 takeover announcements between 1981 and 2007, significant positive announcement returns to acquiring companies were determined. While these positive short-term returns to acquirers represent an outstanding attribute of this industry in terms of perceived synergy potential, this study also finds that acquirers are unable to sustain this exceptional position beyond a short-term horizon. A combination of the Fama-French-3-Factor model in calendar time and the control firm approach in event time consistently reveals significant value destruction of about 20% over 3years. In addition, the study determines a significant impact of internationalization, transaction volume, product diversification, and acquirer’s bidding experience on the long-term post-acquisition performance.     

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.     

Procedural justice and identification with the acquirer: the moderating effects of job continuity,organisational identity strength and organisational similarity

This study examined factors influencing whether acquired employees identify with their acquirer and the complex role that the different types of continuity play in moderating relationships between procedural justice and post‐acquisition identification. Data were obtained (n = 156) from a three‐country sample of employees working for a recently acquired multinational. Multiple regressions showed that expected job continuity moderated the relationship between acquirer procedural justice and post‐acquisition identification. Analysis examined combinations of two organisational identity‐related continuity forms (organisational similarity and acquirer organisational identity); results showed complex interactional effects of organisational similarity and acquirer organisational identity on the relationship between justice and identification with the acquirer.     

What do bank acquirers value in non-public bank mergers and acquisitions?

This study investigates what target, market, and acquirer characteristics influence book value multiples in 288 non-public bank acquisitions from 2001 Q3 to 2005 Q4. Multiples rise with acquirer size and capital ratios. Targets with high proportions of industry-adjusted core and large deposits have higher multiples. When using target variables relative to acquirers, multiples rise with higher proportions of core and large deposits, larger average bank size in the market, and relative growth in assets, loans, and deposits as well as market growth. In contrast to prior findings for public targets, acquirers do not pay premiums for target accounting performance.     

The strategic choice of payment method in takeovers: The role of environmental,social and governance performance

Payment method choice in takeovers is mainly driven by both asymmetric information between the acquirer and the target and the acquirer's financial capability. In this paper, we examine whether increased transparency and better access to finance induced by environmental, social and governance (ESG) performance are associated with the strategic choice of payment method in takeovers. More specifically, we investigate how the acquirer's and the target's ESG coverage and different levels of ESG performance affect the probability of cash offers in a sample of 836 US takeovers from 1992 to 2014. In examining the target, our results suggest that ESG coverage is positively associated with the probability of cash offers, whereas we find a negative relationship for ESG concerns and no effect for ESG strengths. Upon examining the acquirer, ESG coverage and ESG concerns both increase the probability of cash offers; however, we do not find results supporting our prediction regarding the acquirer's ESG strengths. We infer that ESG coverage and level affect strategic considerations in the choice of the payment method in takeovers because they not only reduce information asymmetry, but also enhance financing capability.     

The influence of private equity and venture capital on the post-IPO performance of newly-public acquirers

This paper examines the influence of private equity (PE) and venture capital (VC) ownership on the post-initial public offering (IPO) performance of newly-public acquirers. Our results show that acquirers with PE- or VC-backing at the time of the IPO perform better long-term than acquirers without such backing. More importantly, while acquirers without financial backing experience negative long-run returns from first-year acquisitions, acquirers with continued PE- and VC-backing perform significantly better when making acquisitions within the first year after going public. However, acquiring firms and investors should be aware that for mergers in the second and third year post-IPO, continued VC ownership has a detrimental long-term impact. In contrast, higher levels of continued PE ownership tend to have a positive relationship with long-run performance.