Does Fintech facilitate cross-border M&As? Evidence from Chinese A-share listed firms

This paper examines whether and how financial technology (Fintech) affects the cross-border M&A decision-making and the performance of acquiring firms. Using a sample of Chinese A-share listed firms over the period of 2011–2019, we find that local Fintech development effectively facilitates firms' cross-border M&A activities. This effect is more prominent for firms with lower innovation capability, with higher profitability, and those in key participant provinces of the Belt and Road Initiative. We provide evidence that Fintech supports the decision-making of cross-border M&As due to the mitigation of financing friction and the decrease in information disadvantage. Further analysis also shows that the acquirer's cross-border M&A performance is higher when it is located in a province with better development of Fintech. Our paper provides new insights into the impact of technology-enabled innovation in the financial industry on the behavior of firms in non-financial industries.     

Do CFOs matter? Evidence from the M&A process

This study examines the effect of Chief Financial Officers (CFOs) on mergers and acquisitions using a newly constructed CFO Influence Index. Because the perceived influence of CFOs is high in U.K. firms, we use that market for our analysis. We find that influential CFOs as measured by experience, stature, and pay are associated with more deal completions and the pursuit of smaller, domestic targets. High influence CFOs require less time to complete a deal and are able to identify higher quality targets for which they pay less. We also discover that firms with high influence CFOs enjoy greater long-term operating and financial performance post-merger. We conclude that influential CFOs are effective in creating shareholder value during M&A.     

How do firms learn? Evidence from corporate cash holdings during the COVID-19 pandemic

We examine the impact of COVID-19 on US corporate cash holdings. Our findings suggest that greater pandemic exposure is associated with higher corporate cash holdings and that firms learn from prior experiences as they manage their cash policies. More specifically, the level of cash holdings in firms that experienced severe financial constraints during the 2008 credit crisis and firms with prior severe acute respiratory syndrome (SARS) and H1N1 exposure is significantly lower than that of firms with no prior epidemic or financial constraints experience. Overall, our findings support the learning behaviour of cash and contribute to corporate cash holdings literature by providing insights on the extent to which firms learn from prior experiences to manage their liquidity.     

Does economic policy uncertainty affect cross-border M&As? —— A data analysis based on Chinese multinational enterprises

This paper analyzes the impact of economic policy uncertainty (EPU) of home and host countries on cross-border mergers and acquisitions (M&As) using EPU indexes and the amount and quantity of China's cross-border M&As in 21 countries from 2001 to 2017. First, we find that uncertainty in the economic policy of the home country drives cross-border M&As, uncertainty in the host country's economic policy significantly inhibits cross-border M&As, and when the economy is in a pro-cyclical period, alleviates the influence of the host country's economic policy uncertainty on M&As. Second, the impact of the host country's economic policy uncertainty on cross-border M&As differs before and after the financial crisis. The host country's economic policy uncertainty is positively correlated with cross-border M&As before the crisis and significantly negatively correlated with it after the crisis. Third, the impact of economic policy uncertainty in the home and host countries on cross-border M&as is significant in developed countries but not significant in developing countries finally, differences in bilateral uncertainty and bilateral market growth are significantly positively correlated with the scale of M&A     

What do bank acquirers want? Evidence from worldwide bank M&A targets

What drives bankers to create larger and larger, often multinational banking groups? In this paper we investigate whether the targets in cross-border bank M&As are materially different from those banks targeted in domestic M&A deals. The main message of this paper is that, with few exceptions, domestic and foreign investors target similar banks. In particular, and contrary to what one might expect, bank size does not have a different effect on the probability of being a domestic or a cross-border target, instead it has a positive and highly significant effect in both cases. We find that the main differences between national and international M&As are the characteristics of the countries where the banks operate.     

21 years of international M&As and joint ventures by Italian medium-sized listed firms: Value creation or value destruction?

This study provides evidence of the value creation of different equity entry modes in a sample of international investments performed by all Italian medium-sized listed firms in the period 1986-2006. Our research shows a positive and significant market reaction to announcements of internationalization strategies. The results are largely affected by high-equity entry modes carried out in advanced economies. Low-equity entry modes and international operations performed in emerging countries show no significant market reaction. We also find that the relative size of the deal, the firm age, the country risk, and the evolution of information disclosure regulation, matter in explaining the outcomes.     

Cross-border M&As in the financial sector: Is banking different from insurance?

This paper investigates what factors might help explain the internationalization strategy of banks and insurance companies, by comparing the determinants of cross-border M&As in the two sectors in a unified framework. The empirical analysis shows that between 1990 and 2003 the internationalization of banks and insurance companies followed similar patterns. Distance and economic and cultural integration are important determinants for both the banks’ and the insurance companies’ expansion abroad. Comparative advantage also has a prominent role, the more so for banks. The evidence is less supportive of the view that cross-border M&As are more frequent between similar countries, as predicted by the new trade theory. Finally, and most interestingly, we find indirect evidence consistent with the hypothesis that implicit barriers to foreign entry are more important in explaining the behavior of banks than that of insurance companies.     

Is corporate social responsibility engagement influenced by nearby firms? Evidence from China

This paper explores whether the CSR engagement of a focal firm is influenced by the CSR density formed by nearby firms. Using a sample of listed firms from 2010 to 2019 in China, we find a positive relationship between the local CSR density and the CSR engagement of a focal firm. Based on the heterogeneous analysis, we find that the impact of local CSR density is more pronounced for firms with worse financial conditions (i.e., lower profits, cash to debt, sales to inventory, and higher leverage), less corporate investment (i.e., lower capital expenditure growth, organization capital investment, employee growth) and fewer market shares. The primary findings are robust after addressing potential concerns. Overall, our findings provide evidence of the effect of firms' locations in the context of CSR engagement and have insightful implications for managers and governments seeking CSR improvement in emerging markets.     

Is local bias a cross-border phenomenon? Evidence from individual investors’ international asset allocation

Extant literature consistently documents that investors tilt their domestic equity portfolios towards regionally close stocks (local bias). We hypothesize that individual investors’ local bias is not limited to the domestic sphere but instead also determines their international investment decisions. Our results confirm the presence of a cross-border local bias. Specifically, we show (i) that the stockholdings of individual investors living within regional proximity to a foreign country display a significantly lower foreign investment bias towards investment opportunities in that country and (ii) that this drop in foreign investment bias levels is disproportionately driven by investments in regionally close neighbor-country companies. The impact of cross-border local bias on investors’ bilateral foreign equity investments is economically significant and holds even after controlling for previously identified explanations of international asset allocation.     

Is M&A different during a crisis? Evidence from the European banking sector

The financial crisis has affected the landscape of the banking sector around the world. We use a sample of transactions carried out by European acquirers in 2007–2010 to study the acquirer’s stock price market reaction to both announcements and completions of acquisitions. At the aggregate level, we find that there are no significant abnormal returns around the announcement of an acquisition while there are positive abnormal returns at completions. We study the cross-sectional determinants of abnormal returns and find that announcement returns are mainly explained by the acquirer bank characteristics, while completion returns mainly depend on opacity of the target and on the drop in idiosyncratic volatility associated with a reduction of uncertainty.     

Do firms have leverage targets? Evidence from acquisitions

In the context of large acquisitions, we provide evidence on whether firms have target capital structures. We examine how deviations from these targets affect how bidders choose to finance acquisitions and how they adjust their capital structure following the acquisitions. We show that when a bidder's leverage is over its target level, it is less likely to finance the acquisition with debt and more likely to finance the acquisition with equity. Also, we find a positive association between the merger-induced changes in target and actual leverage, and we show that bidders incorporate more than two-thirds of the change to the merged firm's new target leverage. Following debt-financed acquisitions, managers actively move the firm back to its target leverage, reversing more than 75% of the acquisition's leverage effect within five years. Overall, our results are consistent with a model of capital structure that includes a target level and adjustment costs.     

Can foreign suppliers act as “innovation springboards” for firms? Evidence from China

This study provides a new approach for measuring supplier characteristics by distinguishing the countries where they are located. Using data of Chinese listed companies, we explore how firms' R&D investment and innovation efficiency (patents and citations) are affected by having foreign suppliers in their top five suppliers. Our findings suggest that foreign suppliers acting as transmitters of international technology increase firms' innovation efficiency based on organizational learning theory. Moreover, a series of uncertainties caused by foreign suppliers encourages firms to invest more in R&D based on strategic growth option theory. Mechanism tests show that foreign suppliers from countries with high innovation capacity and a similar Eastern culture have a greater impact on corporate innovation. Firms conduct more R&D activities to mitigate the uncertainties caused by foreign suppliers when they have insufficient overseas channels to acquire international knowledge and a high degree of dependence on foreign suppliers. These results are consistent with a series of robustness tests after accounting for endogeneity.     

Do productive firms get external finance? Evidence from Chinese listed manufacturing firms

Due to information asymmetry problem in financial markets good quality firms often find it difficult to prove to external finance providers about their true quality and to distinguish themselves from bad quality firms. We argue that instead of sending indirect signals to financial market good quality firms could focus on improving their productivity to obtain external finance. Besides relying solely on firms' balance sheet information external finance providers using firms' TFP or labour productivity information would have a true knowledge of firms' efficiency and risk. Overall, using a panel of 1591 Chinese listed manufacturing firms between 2003 and 2016 we find that productivity measured by TFP or labour productivity is statistically and economically important and positive in determining firms' external finance, i.e. total leverage, new issue of equity and long-term debt. We find that productivity is helpful for firms to raise new equity finance, but only some weak results for total leverage and long-term debt. Such results hold for both the whole sample and private firm sample. We also find that large and/or old firms and exporting firms are able to make better use of their productivity to gain external finance than their respective counterparts, i.e. small young firms and non-exporting firms. The causality of the regression results is also confirmed by difference-in-difference tests using an exogenous industrial policy shock.     

Does ownership concentration improve M&A outcomes in emerging markets?: Evidence from India

Using firm level data from India, we examine the impact of ownership concentration on post-M&A performance of firms. Our analysis has implications for both the M&A literature, which emphasises the role of agency conflict between managers and owners of widely held companies as a key reason for M&A failures, and the corporate governance literature, especially in the context of emerging market economies. A cautious interpretation of our results suggests that while ownership concentration may reduce the manager–owner agency conflict, it may nevertheless precipitate other forms of agency conflict such that ownership concentration may not necessarily improve post-M&A performance. In particular, our results have implications for the literature on the agency conflict between large (or majority) shareholders and small (or minority) shareholders of a company, especially in contexts such as emerging market economies where corporate governance quality is weak.     

Does takeover activity affect stock price crash risk? Evidence from international M&A laws

We exploit the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover to examine whether the market for corporate control has a real effect on firm-level stock price crash risk. Using a difference-in-differences regression on a large sample of firms from 32 countries, we find that stock price crash risk significantly decreases following the passage of M&A laws. This effect is stronger for firms domiciled in countries with poorer investor protection and information environments and for firms with weaker firm-level governance. Further, financial reporting opacity and overinvestment significantly decrease in the post-M&A law periods. Our study suggests that an active takeover market has a disciplining effect on managerial bad news hoarding and leads to lower future crash risk.     

Do corporations learn from mispricing? Evidence from takeovers and corporate performance

In this article we form the simple prediction that mispricing encourages traders to collect costly information that guides managerial decisions at corporate level. Our findings support this prediction based on evidence derived from both the US market for corporate control and the overall variation in aggregate corporate profits. The trading activity in response to the temporary mispricing of the merging companies provides useful information that leads to the design of high-synergy deals. Such synergies are reflected in an increase in the announcement period acquirer abnormal returns and are not reversed in the long-run. At the market-wide level, our results suggest that the growth in the overall stock trading volume in response to market mispricing is associated with high future corporate profit growth. Overall, after controlling for several economic and financial conditions, the temporary mispricing in a developed and generally efficient stock market stimulates informative trading, ultimately leading to value- and performance-enhancing corporate decisions.     

On corporate financial distress prediction: What can we learn from private firms in a developing economy? Evidence from Greece

Review of Quantitative Finance and Accounting - Using a large dataset that includes nearly 31,000 Greek private firms we examine the determinants of the probability of corporate financial distress....     

Industry policy,investor sentiment,and cross-industry capital flow: Evidence from Chinese listed companies’ cross-industry M&As

This study investigates how the government’s industry policies affect investor sentiment, and whether the influenced investor sentiment guides corporate capital flow in the real economy. By examining a sample of cross-industry mergers and acquisitions (M&As) of Chinese listed companies, we find that industry policies promulgated by the government have a significant asymmetric influence on investor sentiment. Furthermore, investor sentiment under the exogenous shock of industry policies has a significant real effect on companies’ cross-industry M&A behavior, generating cross-industry capital flow. Additional analyses reveal that this effect arises because the acquirer depends on equity financing and has incentive to cater to investor sentiment. Our findings help clarify the effect of public policies on the stock market, theoretically, from the company’s micro-level perspective, as well as the mechanism by which stock market volatility transmits to the real economy.     

Is the effect of shared auditors driven by shared audit partners? The case of M&As

Recent research suggests that shared auditors impact firm outcomes by facilitating information flows across clients and increasing financial statement comparability. This study argues that since client specific knowledge resides with audit partners the effects of shared auditors on corporate outcomes is primarily driven by client engagements with shared audit partners. We test this argument using Australian merger and acquisitions, where there is a longstanding requirement for the disclosure of audit partner details. We find: (i) a positive association between shared audit partners and the likelihood of a friendly acquisition, (ii) a negative association between shared audit partners and takeover premiums, and (iii) a positive (negative) association between shared audit partners and acquirer (target) and total cumulative abnormal returns. We also document that the significant effect of shared auditors is restricted to takeovers with shared audit partners.     

How Do Stock Markets in the US and Europe Price Efficiency Gains from Bank M&As?

This paper examines whether the stock markets price changes in operating efficiency as a result of bank mergers and if the premiums paid by the acquiring banks also reflect these changes. The sample covers mergers and acquisitions consummated in the US and Europe during the period of 1997 to 2003. Changes in cost and profit efficiency are calculated using the non-parametric Data Envelopment Analysis (DEA) method 1 year prior and 3 years following the merger announcement. Evidence suggests a significant relation between the announcement-period abnormal returns and the post-merger profit efficiency changes. Results also indicate that bank managers are likely to pay a higher premium for those M&A transactions that can bring about greater efficiency gains, particularly on the profit side. Further, although acquirer shareholders in the US and Europe appear to react differently to the announcement of a bank merger, our results for target shareholders suggest that regional differences might be less important than the degree of capital market development in explaining wealth effects.