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.     

Market reaction to large bank merger announcements in oligopolies

This paper evaluates the individual and rival stock price reactions to large bank merger announcements and subsequent regulatory rejection in an oligopoly. The results show that the announcements produce significant positive abnormal returns for the merger candidates. Regulatory obstacles and denial of the proposed mergers produce significant negative returns. Analysis of the rivals’ reactions doesn’t produce consistent significant results. This suggests that the market reactions for the merging banks results are driven by expected increases in efficiencies. The rivals’ reaction is explained by the fact that the market would remain contestable after the mergers since the offered products are homogeneous.(JEL G14, G34)     

The causes of mergers: tests based on the gains to acquiring firms' shareholders and the size of premia

Despite the large number of event studies of mergers that have been undertaken, considerable disagreement still exists over whether mergers increase the value of the merging firms, and if so why. Most event studies measure the average returns to the acquired and acquiring companies' shareholders separately, and based on these averages conclude either that mergers increase wealth, or that they reduce it. From this the authors go on to claim support either for a hypothesis about how mergers increase efficiency, or for one that claims they do not. This paper develops a methodology that uses the distribution of gains and losses across the two samples of firms, and their relationship to one another to test four hypotheses about why mergers occur: (1) the market‐for‐corporate‐control hypothesis, (2) the synergy hypothesis, (3) the managerial discretion hypothesis, and (4) the hubris hypothesis. The hypotheses are tested with data for 168 mergers between large companies from 1978 through 1990. Considerable support is found for the managerial discretion and hubris hypotheses, and some support is found for the market‐for‐corporate‐control hypothesis. Little or no support is found for the hypothesis that mergers create synergies and that shareholders of both the acquiring and acquired firms share gains from these synergies. Copyright © 2003 John Wiley & Sons, Ltd.     

Toeholds,rejected offers,and bidder gains: Do rebuffed bidders put targets in play to profit from their toeholds?

Previous research shows that on average acquirers who buy shares in the pre-bid market gain because the average price of the acquisition is reduced. This study addresses a different question, one that relies on the withdrawal of the bidder rather than the successful completion of the acquisition. Do some firms with toeholds bid for the target to entice other bidders into the contest for the gain that they make when they sell their shares in the target to another bidder? This paper argues that holding a toehold makes hostile bidders more likely to withdraw from the contest if another bidder enters. The evidence is consistent with our hypothesis: hostile bidders that have a toehold, on average, earn significant abnormal returns of 4.98%, with a mean toehold of 13.81%. Those without a toehold, on average, earn a significantly lower 0.06% return.     

Market impact of international sporting and cultural events

We study market reaction to the announcements of the selected country hosting the Summer and Winter Olympic Games, the World Football Cup, the European Football Cup and World and Specialized Exhibitions. We generalize previous results analyzing a large number and different types of mega-events, evaluate the effects for winning and losing countries, investigate the determinants of the observed market reaction and control for the ex ante probability of a country being a successful bidder. Average abnormal returns measured at the announcement date and around the event are not significantly different from zero. Further, we find no evidence supporting that industries, that a priori were more likely to extract direct benefits from the event, observe positive significant effects. Yet, when we control for anticipation, the stock price reactions around the announcements are significant.     

资本市场有效性与企业并购绩效研究方法选择——基于中国上市公司的实证分析

对上市公司并购绩效研究结论的不一致源于研究方法的不同,研究方法的有效性则依赖于资本市场有效性.采用事件研究法和会计研究法综合分析上市公司并购绩效并对不同研究方法和分析指标所得结果进行比较后发现:并购能给并购企业股东带来超额收益、提升企业价值,但盈余指标提升不明显,研究方法不同导致研究结果迥异；我国资本市场是不完全的半强式有效,研究并购绩效事件研究法局部适用,盈余指标不适用；对于总体并购事件以及不同类型并购,事件研究法和会计研究法中的自由现金流与EVA指标分析结果一致,事件研究法可以被使用；对于是否关联交易的并购绩效研究结论则相反,市场存在“关联交易恐惧”,事件研究法不适用.     

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.     

定向增发预案公告市场反应及其影响因素研究——基于深圳证券交易所上市公司数据的分析

自股权分置改革实施以来,定向增发成为中国上市公司资本市场权益再融资的重要方式之一。通过运用事件研究法对2006年—2007年实施定向增发的深市上市公司董事会预案公告日前后超额收益变化的分析,发现增发规模、机构投资者认购比例是影响预案公告后公司股票超额收益的主要因素;同时还发现在定价基准日之前20个交易日内定向增发公司股价弱于市场表现,存在负的超额收益。     

Corporate governance and the returns to acquiring firms' shareholders: an international comparison

We examine the effects of mergers on the returns to acquiring companies' shareholders for a large sample of companies from both Anglo‐Saxon and non‐Anglo‐Saxon countries over the 1980s and 1990s. With the important exception of Japan, we find similar patterns of returns across both types of countries. For a sample of 9733 acquiring companies the mean percentage gain over a short window of 21 days is 0.6%. This picture changes dramatically as the market has more time to evaluate the mergers and/or the acquiring firms. After three years, acquirers' shareholders in the United States and continental Europe lost on average 19% of their market value compared to a portfolio of non‐merging firms in their size deciles and their two‐digit industry, in Canada, Australia and New Zealand roughly 16%, and in the four Scandinavian countries almost 15%. Further analysis indicates that some mergers are consistent with the hypothesis that mergers generate synergies, but that a majority of mergers in Continental Europe are explained by the managerial discretion and/or hubris hypothesis. Our findings also suggest that corporate governance institutions in the United States and the other Anglo‐Saxon countries lead to better investment performance than in continental Europe, when one confines one's attention to mergers. Copyright © 2007 John Wiley & Sons, Ltd.     

Government intervention in European mergers and acquisitions

The increasing globalization of economies has leveraged protectionist attitudes in different countries during the last decades. In the context of cross-border mergers and acquisitions (M&A), national governments have intervened to “protect” big domestic firms and their industries from foreign bidders. Despite the potential for severe implications of these actions on the internationalization of firms and development of markets, the research in this area is relatively scarce, and we still know very little about the real causes and consequences of government intervention. In this paper, we study government opposition to cross-border European M&A during the period 1997–2017, an era of important changes in Europe. Using an event study methodology, we examine abnormal returns for targets and their rivals in the time period prior to actual intervention to gauge if investors perceive intervened deals as harmful events for the industry, which could justify government intervention. We use a hand collected sample of 1,574 EU15 rival firms for 48 mergers, of which 18 experience government intervention. Entropy balanced regression models show that rivals of intervened targets earn significantly lower returns relative to rivals of non-intervened targets on deal announcement. Nevertheless, rivals’ abnormal returns are not negative, suggesting that intervened deals are not perceived ex ante as harmful for industry competitiveness. The results are more consistent with investors’ ability to identify likely blocked deals, which puts downward pressure on abnormal returns to both the target companies and their rivals. These findings indicate that government interventions against foreign bidders seem to have an economic cost in the sector that is anticipated by the investors.     

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.     

The two stages of an equity carve-out and the price response of parent and subsidiary stock

This paper provides evidence that an equity carve-out is usually the first stage of a two-stage process either to dispose of parent interest in a subsidiary or eventually re-acquire the subsidiary's publicly traded snares. Both the initial carve-out announcement and subsequent sell-off announcement yield, on average, significantly positive abnormal returns to parent shareholders. In contrast, the parent's price response to a re-acquisition of subsidiary shares is, on average, insignificantly positive. Both sell-off and re-acquisition announcements have a strong positive impact on subsidiary share prices. These gains, however, are offset by the subsidiaries' below-average return performance preceding the second event.     

Executive compensation,method of payment and abnormal returns to bidding firms at takeover announcements

This study investigates the association between method of payment, long-term performance plans, managerial stockholdings and abnormal returns to bidding firms at takeover announcements, using a cross-sectional regression methodology. Previous studies have examined each of these factors separately. The results indicate that firms with long-term performance plans and high managerial stockholdings in cash offers experience significantly higher abnormal returns at the announcement of mergers prior to 1980. The study provides additional evidence in explaining the previous conflicting results (Jensen and Ruback, 1985), examining the stock market reaction of bidding firms at merger announcements.     

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.     

Conditional heteroskedasticity adjusted market model and an event study

Stock returns series generally exhibit time-varying volatility. Therefore, one can cast doubt on the way abnormal returns are calculated and consequently interpreted in traditional event studies. In this paper we apply a market model which accounts for GARCH effects leading to more efficient estimators. Using a sample of divestitures, we empirically investigate how this adjustment affects the magnitude of the abnormal returns associated with an event.     

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.     

The underwriter’s early lock-up release: Empirical evidence

A lock-up agreement is an arrangement between the underwriter and certain pre-IPO shareholders. This paper examines the influence of an underwriter’s early lock-up release on shareholder wealth. The study found significant negative abnormal returns associated with the early lock-up release annoucement. Negative abnormal returns are more pronounced for venture capital backed firms than for firms not venture capital backed. In addition, scheduled lock-up release day abnormal returns, found in previous studies to be significantly negative, are reduced for firms announcing the early lock-up release.(JEL G24, G30)     

Performance of bank mergers and acquisitions: a review of the recent empirical evidence

This review provides a comprehensive analysis of the literature on bank mergers and acquisitions with an emphasis on the last decade. The study identifies and analyzes more than 135 publications focusing on this subject. The publications are grouped along their regional focus and the three main empirical methodologies utilized in the literature. The results are documented in detail and their evolution over time is discussed. The key factors influencing the performance of bank mergers and acquisitions, as identified in the relevant literature, are grouped into three categories and evaluated according to their contribution to the success of a merger. This paper concludes with a brief discussion of the influence of managers on the performance of mergers and acquisitions and evidence on regulatory arbitrage through bank mergers and acquisitions.     

Market effects of private equity placement: Evidence from Chinese equity and bond markets

Research has provided empirical evidence for the stock market reaction toward private placement; however, similar research has not been conducted in terms of the bond market. Using the event study method, we empirically examine the explanatory power of the signaling, free cash flow, and wealth transfer hypotheses based on the reaction of the stock market, bond market, and firm abnormal returns to the private placement announcement. The results show that the stock market has a negative reaction toward private placement, whereas the bond market has a positive reaction. The results also show that the scale of private placement is correlated with the severity of the market reaction. Abnormal returns indicate no significant change both before and after the private placement, and they are unaffected by the scale of private placement. These results are consistent with the wealth transfer hypothesis; however, the market reaction is not attributable to the signaling hypothesis and the free cash flow hypothesis. Extensive research shows that the abnormal returns of private placement change dramatically in non-state-owned enterprises and firms with low credit rating bonds, whereas the bond maturity has no significant impact on the abnormal returns—the wealth transfer effect of private placement is stronger in non-state-owned enterprises and firms with low credit rating bond.     

Price and volume effects associated with changes in the Dow Jones Averages

This study compares the price and volume responses associated with changes in the roster of the Dow Jones Industrial and Transportation Averages with previous research investigating changes in the rosters of the Standard and Poor's stock indices. Event period abnormal returns and daily trading volume for firms added to the Averages are consistent with Merton's (1987) attention hypothesis. Firms added to the roster of the Industrial Average experience positive significant abnormal returns and significantly greater trading volume on the event date. Firms added to the Transportation Average, an event which receives much less media attention, experience neither event period abnormal returns nor increased trading volume. Firms dropped from both Averages experience neither event period abnormal returns nor increased trading volume.