Abnormal returns and asymmetric information surrounding strategic and financial acquisitions

Using takeover bids from the United States, we investigate the importance of information asymmetry in self-selection when evaluating the abnormal returns of financial versus strategic takeover targets during a period of possible informed trade. Sample selection bias due to differences in financial versus strategic takeover bid information environments is controlled for using Heckman's model. Results show that takeover announcements are not randomised, indicative of timed announcements, and further that private equity firms exhibit lower price impact post-announcement. We conclude that the long-term financial motive of private equity takeovers, coupled with higher private information pre-announcement, leads to lower abnormal returns post-announcement.     

Returns to acquirers of privatizing financial services firms: An international examination

While the literature reports improved performance for privatizing firms, banking markets are different. Many privatizing financial services firms face unique problems such as an overhang of problem loans and weak credit cultures and legal systems. We investigate the returns to successful bidders in privatization acquisitions of financial services firms, examine short-horizon performance, and test whether such acquisitions result in a change in risk for the bidding firm. Our results show that the cumulative abnormal returns to shareholders of bidding firms are positive, perhaps reflecting initial optimism that the foreign firm acquiring the privatizing firm would share in the success associated with privatization. Bidders also experience an increase in their total risk following the acquisition.     

The financial distress pricing puzzle in banking firms

This paper examines whether the financial distress pricing puzzle observed for non-financial firms is also observed for financial firms and how this puzzle differs according to the extent of short-sale constraints. By using the eight distress measures developed for financial firms, we find that there is a strong negative relation in the cross-section between financial distress and subsequent bank stock returns, regardless of adjustment for risk. However, this distress pricing puzzle is statistically significant only for high short-sale constrained banks, but not for low short-sale constrained banks. Thus, short-sale constraints are at least one non-risk attribute that causes the distress pricing puzzle for financial firms. We also find that despite its simple form, compared to the other complex distress measures, non-performing loans (NPLs) are the most informative in predicting future bank stock returns as well as bankruptcy and failure.     

Spillover effects of banking systemic risk on firms in China: A financial cycle analysis

This paper investigates the spillover effects of banking sector risk on firms in China and explores the risk transmission channels from the perspective of financial cycle. We use the banking risk-taking and systemic risk as the proxies of financial booms and busts. Our study yields four main findings. First, the banking risk-taking reduces firm risk in financial booms. Higher financing costs and constraints, larger firm size and financing scale, and state ownership inhibit the spillover effects. Second, the banking systemic risk increases firm risk during financial busts. Higher financing costs and constraints, larger firm size and financing scale, and state ownership facilitate the spillover effects. Third, the magnitudes of banking risk spillovers vary across industries, and this effect is more pronounced in the manufacturing industry. Fourth, bank risk-taking affects firm risk differently through various channels in different leading periods. When leading 1 to 3quarters, banking risk-taking reduces firm risk, and channel variables inhibit the spillover effects. However, when leading 4 to 8 quarters, the rising bank risk-taking eventually increases firm risk, and channel variables amplify its spillover effects. Our study offers important policy implications for risk assessment and mitigation in the Chinese loan market.     

Posterior analysis of mergers and acquisitions in the international financial market: A re-appraisal

Do mergers and acquisitions (M&A) improve the wealth status of investors, and if so, amidst persistence of volatility shocks? This paper tests these propositions by employing in the first step, a modified event study approach, and estimating a long-memory conditional volatility model, in the second step. The financial and policy implications of M&A are varied and contestable, yet, from an investor’s perspective, the long-term adjusted gain from M&A depends not only on the immediate growth of wealth, but also the fact that such a growth would accompany reduced rate of volatility persistence. Although in the beginning, a high persistence of volatility cannot be ruled out, its presence in the longer-run implies that the wealth gains from M&A are unstable, leading perhaps to a further collapse of both the merged/merger and acquired/acquiring firms. We estimate a long-memory Generalized Conditional Heteroscedasticity (GARCH) model with a Markovian transition for a number of international firms, specifically in Asia, to show in the first place, whether volatility shocks display differential memory in the pre- and post-M&A periods and whether the asymmetric high persistence is in the aftermath of M&A. Our results point at a significant ‘non-zero’ and positive gain for investors following M&A, but this is combined with greater volatility persistence.     

Operational efficiency in banking: An international comparison

In this paper, we estimate a global cost function for international banks to test for both input and output inefficiencies. Our results for 1988–1992 suggest that for banks in 15 countries, the prevalence of input X-inefficiencies far outweighs that of output inefficiencies (as measured by economies of scale and scope). Moreover, our results suggests that the distribution-free model overestimates the magnitude of X-inefficiencies relative to the stochastic cost frontier approach.Large banks in separated banking countries (that prohibit the functional integration of commercial and investment banking) had the largest measure of input inefficiency amounting to 27.5 percent of total costs as well as significant levels of diseconomies of scale. All other banks have X-inefficiency levels ranging in the area of fifteen percent of total costs with slight economies of scale for small banks.     

增强中国银行业国际竞争能力和金融业务创新能力

我演讲的题目是《增强中国银行业国际竞争能力和金融业务创新能力》。为什么要在金融信息化论坛上选择这样一个题目呢?原因是金融国际化的快速推进使得金融企业惟一出路就是在竞争中求发展,进行金融创新。金融业在竞争行业中是最具代表性的一个行业,因为金融业的市场、产品、技     

Multinational banking and the international transmission of financial shocks: Evidence from foreign bank subsidiaries

Using bank-level data on 368 foreign subsidiaries of 68 multinational banks in 47 emerging economies during 1994–2008, we present consistent evidence that internal capital markets in multinational banking contribute to the transmission of financial shocks from parent banks to foreign subsidiaries. We find that internal capital markets transmit favorable and adverse shocks by affecting subsidiaries’ reliance on their own internal funds for lending. We also find that the transmission of financial shocks varies across types of shocks; is strongest among subsidiaries in Central and Eastern Europe, followed by Asia and Latin America; is global rather than regional; and becomes more conspicuous in recent years. We also explore various conditions under which the international transmission of financial shocks via internal capital markets in multinational banking is stronger, including the subsidiaries’ reliance on funds from their parent bank, the subsidiaries’ entry mode, and the capital account openness and banking market structure in host countries.     

Corporate acquisitions and financial constraints

Using a large sample of US acquisitions made between 1985 and 2013, we study the effect of financial constraints on acquisition gains and acquisition likelihood. Our findings show that financial constraints of target companies significantly increase acquisition premiums and abnormal returns for both parties. Our results further show that the presence of financial constraints in the target is one of the most important determinants of a takeover bid. This supports the idea that acquisitions may improve the ability of financially constrained companies to access capital through a better reallocation of resources within segments of the same company (e.g., internal capital market) or through better access to external markets. This would eventually benefit bidders too, as new capital would be invested in valuable growth opportunities that otherwise would expire unexercised.     

国际金融危机中我国银行业的风险管控策略

随着社会主义市场经济的不断发展，银行业在国民经济运行中的核心地位日益显现，银行业健康运行与否已经关系到整个国民经济发展的大局。2007年，国内几家金融机构都先后发生了IT风险事件，这些问题不仅制约着银行业的健康发展，而且有可能危及经济发展和社会稳定的全局。银行业的风险管理和防范关系到国家的经济发展，     

Liquidity, credit creation and international banking : An econometric investigation

For the past 18 months the Treasury and Civil Service Select Committee of the British House of Commons has been taking evidence from expert witnesses and interested parties concerning International Monetary Arrangements. An important concern of their work has been the inter-relationship between current problems in international bank lending and macroeconomic policies. Our presentation will review the opinions expressed in the Committee's Reports in the light of the econometric evidence we have obtained in our formal paper prepared for this conference. Basically we feel that the current problems facing the international banking system are in no small part due to the increased systematic risk introduced into the system by the macroeconomic policies followed by the industrial countries over the past decade, rather than simply to reckless and imprudent bank management. Further, our econometric evidence suggests that Eurocurrency flows may have a substantial effect on domestic liquidity, in contrast to the accepted view that such flows are unimportant. An underlying major theme of our paper concerns the importance of using modern econometric methods to shed light on current important problems of international financial interdependence.     

Governance through trading on acquisitions of public firms

We identify an important channel, acquisitions of public targets, via which the governance through trading (GTT) improves firm values. The disciplinary effect of GTT is more pronounced for firms with higher managerial wealth-performance sensitivity and moderate institutional ownership concentration. Firms with higher GTT also have higher subsequent ROA, ROE, Tobin's Q, analysts forecasted EPS growth rate, and lower expected default risk. The effect is stronger after Decimalization. We conduct several exercises to rule out alternative explanations, such as institutional superior information, investor activism, and momentum. Additional tests show that the disciplinary effect of GTT only exists for less financially-constrained firms and non-all-cash M&As where the agency problem is more likely to be prevalent.     

Concentrated control,institutions, and banking sector: An international study

Using a broad sample of listed commercial banks in East Asia and Western Europe, this paper investigates the relations among concentrated control, a set of bank operating characteristics, and legal and regulatory regimes. We find that banks with concentrated control exhibit poorer performance, lower cost efficiency, greater return volatility, and higher insolvency risk, relative to widely held ones. We also document that legal institutions and private monitoring effectively reduce the detrimental effects of concentrated control and that official disciplinary power plays a weak governance role, whereas government intervention exacerbates the adverse effects. Further evidence shows that the relations between control concentration and bank operating characteristics are curvilinear and vary according to the types of controlling owners. Overall, our findings support the contention that country-level institutions play important roles in constraining insider expropriation, and that private monitoring mechanisms are more effective than are public rules and supervision in governing banks.     

Taxation and international banking

The purpose of this paper is an examination of the relationship between taxation and the working of international banking arrangements. The main task is directed to the ways taxation determinations by national authorities affect the ways international banks go about their business. International coordination through the Organisation for Economic Co-operation and Development (OECD) is a major focus of the analysis. There is no general exposition of principles bearing upon international taxation. Rather, attention is directed to the determination of tax obligations in any one jurisdiction. Thus, there is a close scrutiny of the mechanics of taxation in the international setting bringing out the uncertainties and the imponderables in any application. Much attention is given to structural arrangement in international banking as well as capital arrangements in any one jurisdiction and how this applies to and affects the banking group as a whole. The result is to bring out the complexity of the agenda for tax applications on a common basis across internationally operating groups. Most jurisdictions recognise that they cannot await common agreements because new instruments and arrangements emerge at very frequent intervals and their tax implications have to be addressed. There has to be relief from uncertainty if markets are to develop effectively. Thus, there is in an importance sense of partnership between tax authorities and market participants in many countries. International deliberations have taken too long.     

Bidder returns in interstate and intrastate bank acquisitions

Returns to bidders are examined for 108 bank acquisitions over the 1981–1987 period. These returns provide evidence on the conflict-of-interest hypothesis and the hubris hypothesis, both of which predict negative returns to bidders, versus the shareholder wealth maximization model that predicts positive (or at least non-negative) returns. Further evidence on these hypotheses is provided from the returns on 18 defensive acquisitions. Consistent with the conflict-of-interest and hubris hypotheses, announcement period returns are negative and statistically significant both for interstate and intrastate acquisitions. However, bidder returns to interstate bank acquisitions do not differ significantly from intrastate mergers.     

Ownership concentration and bank risk: international study on acquisitions

This paper explores the effects of different types of bank ownership concentration on changes in bank risk during acquisition years. Using multi-country data from 2000 to 2006, during which market failures caused by various crises and government interventions are less influential to acquisition decisions, we collect 505 banking acquisition deals from 23 countries to examine which type of ownership concentration (such as financial intermediary, capital investor, non-financial, and state ownership) brings larger changes to an acquirer’s risk from pre-acquisition year to post-acquisition year (including non-performing loans, capital adequacy ratio, loan loss reserve, and credit rating). The empirical analyses show that acquirer banks with a concentration of shares owned by financial intermediaries and non-financial firms experience larger risk changes during acquisition years. In contrast, the risk changes of acquirer banks with a concentration of capital investors and state ownership are lower. Robustness checks from the random effect estimation, instrumental variables model, reverse causality, and different subsamples of (non-)U.S. or different levels of regulation enforcement confirm these results.     

Bidder returns and merger anticipation: Evidence from banking deregulation

This paper examines the anticipated components of bidder returns by focusing on the banking industry around the passage of interstate deregulation (Riegle Neal Act of 1994). Overall, firms that became bidders after Riegle Neal have large significant positive returns during its passage. Moreover, these positive wealth effects are significantly larger than the effects at the merger announcement. These results suggest that bidder returns are anticipated and focusing only on narrow event windows underestimates gains to bidders. Finally, the positive bidder returns appear to provide evidence against both the entrenchment and hubris hypotheses. Additional tests provide evidence to suggest that mergers are motivated by synergy rather than disciplinary motives.     

安全,还是安全!--2004金融展自助设备展区观感

在每一届金融展上,我们都能看到许多亮点,新的技术、新的概念层出不穷;但是,如果单纯指望每届金融展带给我们的都是全新的技术与产品也并不现实,因为技术的发展与产品的更新毕竟存在一定的周期。因此,参观金融展,我们除了要关注“新”外,还要善于回顾,学会用发展与回顾相结合的眼光去感受。正是抱着这样的目的,笔者随着熙熙人流走进了2004金融展自助设备展区。和去年的金融展一样,北京展览馆面积最大、位置居中、坐北朝南的2号馆依旧是自助设备厂商的天下。三位“大腕”的位置基本不变:2号馆西侧还是NCR和德利多富一前一后,东侧的迪堡位置…     

An international comparison of scale economies in banking: Evidence from Turkey

In this article economies of scale are examined for Turkish banks. The literature on economies of scale in depository institutions is substantial. Yet, virtually all published articles have examined production/costs using data for developed countries, such as the United States, Canada, and Israel. Here we examine data from a country that has an economic system vastly different in terms of per capita productivity. Despite the differences, the results are similar across countries in that we find no significant evidence of economies of scale at output levels near the sample mean. This suggests that the conclusion from examining banks in developed countries—that a bank does not have to be large in order to be competitive from a cost perspective—holds in a less developed country.     

Abnormal returns in post-FIRREA acquisitions of failed thrifts

Previous studies have found that positive abnormal returns accompanied announcements that a firm had acquired a failed savings and loan association from the FSLIC. The FIRREA legislation of 1989 resulted, in part, from criticism of some transactions negotiated by the FSLIC, and turned responsibility for such transactions over to the RTC. This study finds that announcements of acquisitions of failed S&Ls in the post-FIRREA period have not been accompanied by positive abnormal returns. The returns to non-assisted acquirers of solvent S&Ls during this period were generally negative, and while they were not significantly different from zero, they were significantly different from the returns to the acquirers of failed thrifts.