Mergers and acquisitions in the US property-liability insurance industry: Productivity and efficiency effects

This paper analyzes the productivity and efficiency effects of mergers and acquisitions (M&As) in the US property-liability insurance industry during the period 1994–2003 using data envelopment analysis (DEA) and Malmquist productivity indices. We seek to determine whether M&As are value-enhancing, value-neutral, or value-reducing. The analysis examines efficiency and productivity change for acquirers, acquisition targets, and non-M&A firms. We also examine the firm characteristics associated with becoming an acquirer or target through probit analysis. The results provide evidence that M&As in property-liability insurance were value-enhancing. Acquiring firms achieved more revenue efficiency gains than non-acquiring firms, and target firms experienced greater cost and allocative efficiency growth than non-targets. Factors other than efficiency enhancement are important factors in property-liability insurer M&As. Financially vulnerable insurers are significantly more likely to become acquisition targets, consistent with corporate control theory, and we also find evidence that M&As are motivated to achieve diversification. However, there is no evidence that scale economies played an important role in the insurance M&A wave.     

Determinants of Cross‐Border Mergers and Acquisitions

The vast majority of cross‐border mergers involve private firms outside of the United States. We analyze a sample of 56,978 cross‐border mergers between 1990 and 2007. We find that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. Valuation appears to play a role in motivating mergers: firms in countries whose stock market has increased in value, whose currency has recently appreciated, and that have a relatively high market‐to‐book value tend to be purchasers, while firms from weaker‐performing economies tend to be targets.     

Overpaid acquisitions and goodwill impairment losses — Evidence from the US

The purpose of this study is to shed light on the reliability of accounting goodwill numbers by examining whether many goodwill impairment losses arise from overpayment for the target at the time of the acquisition, rather than from a subsequent deterioration of goodwill values. A second related objective is to assess whether the goodwill impairment test introduced by SFAS 142 improved the ability of accounting standards to timely capture situations in which the amount of goodwill is overstated and should thus be written down.     

The outsourcing of R&D through acquisitions in the pharmaceutical industry

We examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns. These returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position. A unique Desperation Index is employed to determine the current status of a firm's internal productivity. We find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing-type acquisition in an effort to replenish their research pipelines.     

Human development and cross-border acquisitions

We examine the role of human development in US companies' decisions to engage in cross-border acquisitions. Utilizing the human development index (HDI) published by the United Nations Development Program (UNDP), we find that US firms make acquisitions in countries with strong HDI levels. Alternative factors such as institutional quality, life expectancy, telephone usage and school enrolments also have a positive influence on the cross-border acquisition decision. Further, we find a positive relationship between cross-border mergers and acquisitions (M&As) and HDI rankings relative to the United States. Our findings contribute to the literature that seeks to explain why so little capital flows from developed to developing economies.     

Mergers and the Value of Antitrust Deterrence

While the U.S. has pursued a vigorous antitrust policy towards horizontal mergers over the past four decades, mergers in Canada have until recently been permitted to take place in a virtually unrestricted antitrust environment. The absence of an antitrust overhang in Canada presents an interesting opportunity to test the conjecture that the rigid market share and concentration criteria of the U.S. policy effectively deters a significant number of potentially collusive mergers. The effective deterrence hypothesis implies that the probability of a horizontal merger being anticompetitive is higher in Canada than in the U.S. However, parameters in cross-sectional regressions reject the market power hypothesis on samples of both U.S. and Canadian mergers. Judging from the Canadian evidence, there simply isn't much to deter.     

Mergers and Acquisitions Accounting and the Diversification Discount

q‐based measures of the diversification discount are biased upward by mergers and acquisitions and its accounting implications. Under purchase accounting, acquired assets are reported at their transaction value, which typically exceeds the target's pre‐merger book value. Thus, measured q tends to be lower for the merged firm than for the portfolio of pre‐merger entities. Because conglomerates are more acquisitive than focused firms, their q tends to be lower. To mitigate this bias, I subtract goodwill from the book value of assets and a substantial part of the diversification discount is eliminated. Market‐to‐sales‐based measures do not have this bias.     

悲喜并购

随着我国加入WTO,可以预期,在新世纪,并购将是国际投资人进入中国市场的主要形式.过去那种先栽树、后摘果实的投资模式将会让位于直接购买果园的投资模式.     

Bank Mergers and Insider Nontrading

Insiders with nonpublic information that their firms are acquisition targets can profit by purchasing their firms' stock or by delaying planned sales of their firms' stock. Under current securities laws, insiders who execute the former strategy expose themselves to civil and criminal liability, whereas insiders who execute the latter strategy do not. Using a sample of bank mergers, we find that target bank insiders significantly decrease both share purchases and share sales before merger announcements. These findings suggest that securities laws effectively deter some forms of illegal insider trading and that insiders exploit opportunities to profit legally from nonpublic information.     

Facts & figures

Doctors often express objections to managerialism in general practice. But, as research in this article suggests, their approach to management, revealed by the ways they manage their own practices and surgeries, can be more complex and less anatagonistic than is often assumed by observers.     

Facts & figures

The National Audit Office are emerging as a force for change in management reform in the Civil Service. Their pivotal position, poised between Whitehall and Westminster, gives them a responsibility for ensuring that change is informed by the need to retain public support. The Office's validation is important and provides central government with an incentive to get things right.     

Facts & figures

Public sector pay is in a state of flux. In the Civil Service, under a regime of tight running cost controls, Departments have been obliged to look for flexible pay solutions to their specific recruitment and retention problems. Geographical pay variations and the introduction of performance pay each have apart to play in getting better value for money out of the paybill.     

Facts & figures

Financial Management in the NHS: a Manager's Handbook By H. Mellett, N. Marriott, S. Harris (Chapman and Hall, London, 1993), pp. xvii + 265. £29.50. ISBN 0 412 47320 8.

Competing for Quality—a Manager's Guide to Market Testing By Lynton Barker (Longman, Harlow, 1993). £38.50. ISBN 0 582 23688 6.

The Role of Chief Executives in Local Government By Janice Morphet (Longman, Harlow, 1993), pp. vi + 245. £29.95.     

Competition For Board Seats Following Stock‐For‐Stock Mergers

We examine the board structure of firms following stock‐for‐stock mergers. We find that former target inside (outside) directors are more likely to join the combined firm board when target insiders (outsiders) have a relatively strong position on the pre‐merger target board. The relative size of the target firm, target firm profitability, and target blockholder ownership also influence whether target directors join the combined board. We conclude that competition for board seats on the combined board is won by target directors with greater bargaining positions.     

Exploring the Double‐Sided Effect of Information Asymmetry and Uncertainty in Mergers and Acquisitions

We examine the joint effect of bidder and target information asymmetry and uncertainty on the payment consideration and subsequent wealth effects in a large sample of acquisitions with both listed and private targets. In line with a risk‐sharing argument, we find that acquisitions of targets characterized by higher uncertainty are more likely to be settled with stock. In contrast, higher target information asymmetry increases the likelihood of a cash payment, consistent with bidders strategically exploiting superior information. Acquirers of more opaque targets obtain a larger fraction of total acquisition gains and avoid sharing these gains with target shareholders by offering cash.     

Shareholder litigation in mergers and acquisitions

Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger and acquisition (M&A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M&A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, different judicial standards, major offer characteristics, M&A financial and legal advisor reputations as well as industry and year fixed effects. M&A offers subject to shareholder lawsuits have significantly higher takeover premia in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, resulting in a positive expected gain to target shareholders. However, in general, target stock price reactions to bid announcements do not appear to fully anticipate the positive expected gain from potential litigation. We find that during a merger wave characterized by friendly single-bidder offers, shareholder litigation substitutes for the presence of a rival bidder by policing low-ball bids and forcing offer price improvement by the bidder.     

Corporate Innovations and Mergers and Acquisitions

Using a large and unique patent‐merger data set over the period 1984 to 2006, we show that companies with large patent portfolios and low R&D expenses are acquirers, while companies with high R&D expenses and slow growth in patent output are targets. Further, technological overlap between firm pairs has a positive effect on transaction incidence, and this effect is reduced for firm pairs that overlap in product markets. We also show that acquirers with prior technological linkage to their target firms produce more patents afterwards. We conclude that synergies obtained from combining innovation capabilities are important drivers of acquisitions.     

Leverage adjustment after mergers and acquisitions

Australian firms have leverage targets. Speeds of adjustment to a target capital structure are higher than previously published estimates when there are major disruptions to firms’ leverage ratios. Firms exploit company‐specific characteristics to achieve these targets. Profitability and cash levels are important drivers of the speeds of adjustment. Firms, which have lower profitability or higher cash levels, appear to adjust faster.     

Stock Returns in Mergers and Acquisitions

This paper develops a real options framework to analyze the behavior of stock returns in mergers and acquisitions. In this framework, the timing and terms of takeovers are endogenous and result from value-maximizing decisions. The implications of the model for abnormal announcement returns are consistent with the available empirical evidence. In addition, the model generates new predictions regarding the dynamics of firm-level betas for the period surrounding control transactions. Using a sample of 1,086 takeovers of publicly traded U.S. firms between 1985 and 2002, we present new evidence on the dynamics of firm-level betas, which is strongly supportive of the model's predictions.