Top-tier advisors and the market feedback dynamics in cross-border M&As

We provide evidence that the presence of top-tier advisors increases managers' propensity to withdraw from cross-border mergers and acquisitions (CBAs) with poor market returns around the announcement. This effect is stronger for private target acquisitions, in which information asymmetry is expected to be more pronounced, and smaller bidders, who are likely to lack the expertise required to process information themselves. This suggests that managers assisted by reputable investment banks consider negative market feedback in informationally challenging deals. Our results are robust to several endogeneity tests. We provide novel inferences about the informative role of stock markets in shaping advisory roles in respect of M&As.     

The effect of managers on M&As

In this paper, we document diverse levels of managerial ability and firm performance in the cross section of acquiring firms. Acquirers with strong managerial ability realize higher announcement-period abnormal returns and experience better post-merger firm performance than their low-ability counterparts. Our results are robust to endogeneity concerns and show that the observed variation in acquirer abnormal returns is attributed to the heterogeneity of managerial ability fixed effects across acquirers. Managerial ability adds value to acquirers, especially in stock-financed acquisitions, implying that the method of payment is not driving the negative stock-financed valuation effect documented in previous literature. Moreover, we find that target firms with strongly ingrained growth potential and low levels of financial constraint and bankruptcy risk are highly favored by skilled acquiring managers.     

Shareholder Value Creation in European M&As

This paper looks at the value generated to shareholders by the announcement of mergers and acquisitions involving firms in the European Union over the period 1998–2000. Cumulative abnormal shareholder returns due to the announcement of a merger reflect a revision of the expected value resulting from future synergies or wealth redistribution among stakeholders. Target firm shareholders receive on average a statistically significant cumulative abnormal return of 9% in a one‐month window centred on the announcement date. Acquirers’ cumulative abnormal returns are null on average. When distinguishing in terms of the geographical and sectoral dimensions of the merger deals, our main finding is that mergers in industries that had previously been under government control or that are still heavily regulated generate lower value than M&A announcements in unregulated industries. This low value creation in regulated industries becomes significantly negative when the merger involves two firms from different countries and is primarily due to the lower positive return that shareholders of the target firm enjoy upon the announcement of the merger. This evidence is consistent with the existence of obstacles (such as cultural, legal, or transaction barriers) to the successful conclusion of this type of transaction, which lessen the probability of the merger actually being completed as announced and, therefore, reduce its expected value.     

Powerful bidders and value creation in M&As

This paper explores the role of bargaining ability in corporate mergers and acquisitions (M&As) by focusing on acquiring firms with ex-ante market power—powerful bidders. Drawing from a bargaining power theoretical stance, we argue that powerful bidders create value from M&A activity by paying comparatively lower premiums. We test our empirical proposition using a sample of 9327 M&A deals announced between 2004 and 2016 by bidders across 30 countries. Contrary to the stylized fact that bidders do not gain from M&A activity, we uncover evidence suggesting that powerful bidders pay lower bid premiums and, consequently, earn positive (and relatively higher) cumulative announcement returns (CARs) from M&A deals. On average, the mean returns to powerful bidders (1.3%) are at least twice those of their less powerful counterparts (0.6%). We identify “low financial constraints” as a potential channel through which higher bidder power translates to improved deal performance. Overall, our results provide new evidence on how industry dynamics, notably bargaining power, influences M&A outcomes.     

Cross-Border M&As Involving an Emerging Market

This study analyzes Korean firms’ motives for cross-border M&As, Asia’s representative emerging capital market, from the perspective of financial attributes, and defines the effects of group attributes of cross-border M&As on the wealth of acquiring firms’ shareholders. As for the group attributes of cross-border M&As, shareholders of small firms with high ROA do not like cross-border M&As, because the shareholders of small acquiring firms with sufficient internal growth factors are reluctant to transfer their present wealth to shareholders of foreign target firms. We also verify that the diversification effect with regard to cross-border M&As is accompanied by the diversification discount, but that firms with ample internal funds due to their high ROA like entering into new industries through cross-border M&As. Lastly, when target companies are listed in countries with highly uncertain GDP growth rates, acquiring firms’ value decreased.     

The role of financial literacy in describing the use of professional financial advisors before and during the COVID-19 pandemic

Journal of Financial Services Marketing - This paper documents the effect of the COVID-19 pandemic on the use of profession financial advisors across a broad sample of financial decision makers...     

The value of access to finance: Evidence from M&As

We examine synergies in mergers and acquisitions (M&As) generated by firms’ comparative advantages in access to bank finance. We find robust evidence that greater access to bank finance increases firms’ attractiveness as acquisition targets. Targets’ comparative advantage in bank finance improves bank credit supply and reduces financing costs for the merged firms. These effects are more pronounced for acquirers with greater frictions in accessing bank loans and acquirers with greater growth opportunities. Overall, this paper reveals that targets, not just acquirers, contribute to financial synergies in M&As.     

The role of investment banker directors in M&A

We examine how directors with investment banking experience affect firms? acquisition behavior. We find that firms with investment bankers on the board have a higher probability of making acquisitions. Furthermore, acquirers with investment banker directors experience higher announcement returns, pay lower takeover premiums and advisory fees, and exhibit superior long-run performance. Overall, our results suggest that directors with investment banking experience help firms make better acquisitions, both by identifying suitable targets and by reducing the cost of the deals.     

Corporate social responsibility culture and international M&As

We examine the role of corporate culture in M&As by utilizing a unique corporate social responsibility (CSR) dataset, providing in-depth information on multiple dimensions of organizational culture in 22 developed markets. In accordance with the prediction of the culture clash theory, a wider divergence between the CSR corporate cultures of the acquiring and target firms is associated with lower acquirer announcement and long-run returns as well as synergistic gains for the combined firm. Cultural misalignment also increases the time required to finalise a deal, reduces the likelihood of deal completion and the percentage of stock payment. Our results are robust to alternative explanations (e.g., similarities in national culture, acquirer CSR performance, institutional configurations), different regression specifications, and additional cultural misalignment measures. Our findings highlight the importance of the need for a deeper understanding of the role of CSR for the target selection process, integration planning, and financing choice of M&As to corporations and their investors.     

The usefulness of financial advisors to government-influenced Chinese acquirers

In this study, we examined the usefulness of financial advisors in mergers and acquisitions (M&As) by Chinese acquirers with different levels of government influence. Using a sample of 5614 M&A deals involving unlisted targets in which the use of advisors by acquirers is not mandated, we found that their use is determined by the complexities and information asymmetries associated with such deals, and whether the acquirer has government support. In our analysis of deal outcomes, we also found that the use of advisors increases the likelihood of deal completion and the long-term post-acquisition performance for deals involving acquirers with government control. This indicates an incremental benefit associated with the use of financial advisors for government-controlled acquirers.     

The role of accounting conservatism in M&A target selection

Mergers and acquisitions (M&As) are among the most important investment activities for companies, but they contain great risks. We investigate the role of accounting conservatism in M&A target selection and risk. We find that for risk-averse reasons, firms with high accounting conservatism are likely to acquire profitable targets and avoid loss-making targets. When such firms acquire loss-making targets, the conservatism’s risk-control role reduces M&A risk and increases M&A performance, but only when control of the target is transferred and the acquirer has high long-term debt and low management power. Furthermore, accounting conservatism reduces risk by increasing the maturity match between cash flow and debt. Our results suggest that accounting conservatism plays not only a risk-averse role but also a risk-control role, providing new evidence for the usefulness of accounting conservatism in M&A decisions.     

Macroeconomic news and acquirer returns in M&As: The impact of investor alertness

We investigate the extent to which the scheduled release of macroeconomic indicators affects the acquirer's value in Mergers and Acquisitions (M&As). We find that M&As announced on days of the release of key macroeconomic indicators (i.e. indicator days) realize higher announcement period risk-adjusted returns compared to counterparts announced on non-indicator days. The positive wealth effect is due to the higher market attention on indicator days, which is particularly relevant for smaller M&As that are not usually exposed to significant investor scrutiny. The results hold after addressing self-selection bias concerns. We also find that firms announcing M&As on indicator days are more likely to “listen” to the market's feedback.     

Top-tier financial advisors,expropriation and Chinese mergers & acquisitions

The empirical literature contains mixed evidence regarding the relationship between advisor reputation and returns in mergers and acquisitions (M&As). However, very few studies consider the detrimental effect of expropriation by controlling shareholders and value creation role of top-tier financial advisors. We revisit the role of financial advisors in M&As by examining whether and why top-tier advisors affect acquisition quality in the Chinese market, finding that they generate substantial value for acquiring shareholders, though value creation is lower for high expropriation-possibility acquirers. We also show that top-tier financial advisors help improve operating performance and reduce bid premiums. The results contribute to the takeover literature by shedding new light on the role of financial advisor in acquisitions.     

Time trends and determinants of the method of payment in M&As

We examine the time trends and determinants of the method of payment in M&As spanning four decades. The fraction of mixed payments tripled from about 10% before the turn of the century to 30% in the new century, while the fraction of stock (cash) payments peaked (bottomed out) in the late 1990s but has since plunged (surged). We can explain a portion, but not all, of these trends using explanatory variables linked to adverse selection theory, taxation, and contracting costs. We also show that mixed payments are not merely hybrids between cash and stock payments, but have unique determinants and features.     

Managerial ability,corporate social culture,and M&As

We investigate the predictive power of corporate social culture, as measured by corporate social responsibility (CSR) intensity, on shareholder wealth when mergers and acquisitions (M&As) are carried out by managers with different traits. We find acquiring firms with talented managers are more inclined to engage in CSR activities to shape corporate social culture, thereby realizing larger short- and long-term gains than their counterparts. We also document that acquiring firms with higher levels of CSR commitment led by talented managers tend to acquire targets of similar corporate social culture and experience significantly positive post-merger returns, suggesting that corporate cultural similarity constitutes an important source of M&A synergies. These findings suggest that corporate culture built through stakeholder relations acts as a differentiation strategy that pays off when skilled managers engage in M&As, which typically prompt information asymmetries between managers and outsiders.     

International Taxation and the Direction and Volume of Cross-Border M&As

We show that the parent-subsidiary structure of multinational firms created by cross-border mergers and acquisitions is affected by the prospect of international double taxation. Specifically, the likelihood of parent firm location in a country following a cross-border takeover is reduced by high international double taxation of foreign-source income. At the same time, countries with high international double taxation attract smaller numbers of parent firms. A unilateral elimination of worldwide taxation by the United States is simulated to increase the proportion of parent firms locating in the United States following cross-border mergers and acquisitions from 53% to 58%.     

The earnout structure matters: Takeover premia and acquirer gains in earnout financed M&As

In this article, based on both parametric and non-parametric methods, we provide a robust solution to the long-standing issue on how earnouts in corporate takeovers are structured and how their structure influences the takeover premia and the abnormal returns earned by acquirers. First, we quantify the effect of the terms of earnout contract (relative size and length) on the takeover premia. Second, we demonstrate how adverse selection considerations lead the merging firms to set the initial payment in an earnout financed deal at a level that is lower than, or equal to, the full deal payment in a comparable non-earnout financed deal. Lastly, we show that while acquirers in non-earnout financed deals experience negative abnormal returns from an increase in the takeover premia, this effect is neutralised in earnout financed deals.     

Brokerage M&As and the peer effect on analyst forecast accuracy

We examine whether the impact of a change in the number of analysts a brokerage firm employs has an asymmetric effect on the forecasting ability of superior and inferior analysts. Specifically, we show that following brokerage M&As only superior analysts benefit from a rise in having a larger number of peers. In addition, we find that the market does not account for the improved performance among superior analysts, and argue that this creates an opportunity for investors to capitalize on this.     

Negotiating M&As under uncertainty: The influence of managerial flexibility on the first-mover advantage

Using a dynamic real options approach we show that managerial flexibility is strengthening the first-mover advantage in bargaining M&As by undermining the bargaining power of the second mover.     

兼并收购可以促进劳动力结构优化升级吗？

本文使用2000-2016年我国沪深A股上市公司数据,实证研究了公司被并购对其劳动力结构的影响。研究发现,公司被并购带来公司的劳动力结构优化升级,即公司会增加非常规高技能劳动力占比和高学历劳动力占比,降低常规低技能劳动力占比。渠道检验发现,并购会通过降低企业融资约束,促进企业生产技术升级来促进企业的劳动力结构优化升级。异质性分析发现并购对劳动力结构优化升级的影响在非完全换股并购和低绩效企业中更为显著。