An Examination of the Long Run Performance of UK Acquiring Firms

This study examines a comprehensive data set of large domestic takeovers by UK listed companies between 1984 and 1992. The contribution of this paper is to show, by using a series of models of abnormal returns, together with the Ibbotson (1975) 'Returns Across Time Series' model and a simple cross-sectional model of returns across all listed UK companies, that the average abnormal return for up to two years post-acquisition is unambiguously and significantly negative. In particular, acquirers financing a takeover through equity, and single (as opposed to regular) acquirers exhibit significant negative performance. There is also some evidence to suggest that diversifying acquirers perform worse than non-diversifying acquirers and that recommended bids are associated with poorer subsequent under-performance by acquirers than are hostile bids.     

The Long Run Abnormal Performance of UK Acquirers and the Free Cash Flow Hypothesis

Abstract:   Evidence from recent US and UK studies reveals a pattern of poor long run post acquisition performance by acquiring firms. One explanation, due to Jensen (1986) is that acquirers with an excess of free cash flow (FCF) will have a propensity to squander this on wasteful investments, including take‐overs. In this paper, using a dataset of UK take‐overs and proxies for free cash flow similar to those used by Lang, Stulz and Walking (1991) , we find no support for the FCF hypothesis and show that this conclusion is robust to the model of long run returns employed. Contrary to the free cash flow hypothesis there is evidence that acquirers with high free cash flow perform better than acquirers with low free cash flow. Although not consistent with the Jensen hypothesis, this evidence is compatible with the emerging UK evidence that shows cash flow‐to‐price measures are associated with market returns.     

The Long Run Share Price Performance of Malaysian Initial Public Offerings (IPOs)

Abstract:  This paper investigates the long run share price performance of 454 Malaysian IPOs during the period 1990 to 2000. In contrast with developed markets, significant over performance is found for equally-weighted event time CARs and buy-and-hold returns using two market benchmarks, though not for value-weighted returns or using a matched company benchmark. The significant abnormal performance also disappears under the calendar-time approach using the Fama-French (1993) three factor model. While the long run performance of Main and Second Board IPOs does not differ, the year of listing, issue proceeds and initial returns are found to be performance-related.     

Board Share‐Ownership and Takeover Performance

Abstract:   We investigate the relation between takeover performance and board share‐ownership in the acquiring company for a sample of 363 UK takeovers completed in the period 1985–96. In investigating this relationship we pay particular attention to the composition of board shareholdings as well as their size. Thus, in addition to the analysis of total board holdings, we analyse the separate impact of CEO shareholdings and of the pattern of non‐executive and executive holdings within the board. In addition to our detailed examination of board holdings we assess the impact of non‐board holdings. Our analysis controls for a number of non‐shareholding constraints on discretionary director behaviour and for a variety of other influences on takeover outcomes including: the means of payment; acquirer size and market to book value; the relative size of the acquirer and the target; the nature of the bid in terms of hostility and industrial direction; and the pre‐takeover performance of the acquiring company. We assess performance in terms of announcement returns, long run share returns and a portfolio of accounting measures. We find evidence that overall board ownership has a strong positive impact on long run share returns and a weak positive impact on operating performance. However, much stronger effects are found when the overall board measure is split into CEO, executive, and non‐executive directors. We find strong evidence of a positive relation between takeover performance and CEO ownership, which holds for both long run returns and operating performance measures. This finding is robust to controlling for other factors that determine takeover performance and holds in a two stage least squares framework that controls for endogeneity effects. Shareholdings of other executive directors, non‐executive directors, and non‐board holdings are found to have no significant effect on takeover performance.     

A Long‐Run Performance Perspective on the Technology Bubble

The events surrounding the stock price peak of March 2000 are commonly interpreted as the bursting of a technology or Internet bubble, with some researchers pointing out that the pattern could also arise in fundamental models. We inform the debate by studying the long‐run performance of Internet and technology stocks from March 2000 onward. Using calendar‐time regressions, we do not find conclusive evidence of negative abnormal returns. The results are consistent with a new interpretation of the events; namely, the price drop of the early 2000s was not warranted in light of future cash flows and risk.     

An Examination of UK Unit Trust Performance within the Arbitrage Pricing Theory Framework

This paper examines the performance of a sample of 101 United Kingdom unit trusts within an Arbitrage Pricing Theory framework and considers the relationship between performance and the investment objective, size and expenses of the trusts. Also, portfolio strategies using past trust performances to rank the trusts fails to generate significant abnormal returns relative to two different benchmark portfolios.     

The Impact on UK Acquirers of Domestic, Cross‐border, Public and Private Acquisitions

Abstract:   We examine the announcement and post‐acquisition share returns of UK acquirers in over 4,000 acquisitions of domestic, cross‐border, public and private targets. Domestic public acquisitions result in negative announcement and post‐acquisition returns, whilst cross‐border public acquisitions result in zero announcement returns and negative post‐acquisition returns. In contrast, both domestic and cross‐border private acquisitions result in positive announcement returns and zero post‐acquisition returns. The main differences between private and public acquisitions are that glamour acquirers underperform in public acquisitions but not in private acquisitions, and that acquirers using noncash methods of payment underperform in domestic public acquisitions but not in domestic private acquisitions. Overall, cross‐border acquisitions result in lower announcement and long run returns than domestic acquisitions. In cross‐border acquisitions, those involving high‐tech firms perform relatively well, as do those with low national cultural differences.     

The Choice of Privatization Method and the Financial Performance of Newly Privatized Firms in Transition Economies

There is a gap between the theoretical literature which almost unanimously advocates the privatization of enterprises, as part of the solution to the commitment problem in economies in transition, and the empirical evidence regarding the best way to design a privatization program in order to secure an efficient use of resources. This paper contributes to this debate by focusing on the determinants of the financial long‐run performance of privatized firms in Poland, Hungary, and the Czech Republic. This long‐run performance is mainly influenced by the extent of retained state ownership, the choice of privatization method, and firm size.     

Glamour Acquirers, Method of Payment and Post‐acquisition Performance: The UK Evidence

We study the effect of different acquirer types, defined by financial status and their payment methods, on their short and long‐term performance, in terms of abnormal returns using a variety of benchmark models. For a sample of 519 UK acquirers during 1983–95, we examine the abnormal return performance of acquirers based on their pre‐bid financial status as either glamour or value acquirers using both the price to earnings (PE) ratio and market to book value ratio (MTBV). Value acquirers outperform glamour acquirers in the three‐year post‐acquisition period. One interpretation is that glamour firms have overvalued equity and tend to exploit their status and use it more often than cash to finance their acquisitions. As we move from glamour to value acquirers, there is a greater use of cash. Our results are broadly consistent with those for the US reported by Rau and Vermaelen (1998). However, in contrast to their study, we find stronger support for the method of payment hypothesis than for extrapolation hypothesis. Cash acquirers generate higher returns than equity acquirers, irrespective of their glamour/ value status. Our conclusions, based on four benchmark models for abnormal returns, suggest that stock markets in both the US and the UK may share a similar proclivity for over‐extrapolation of past performance, at least in the bid period. They also tend to reassess acquirer performance in the post‐acquisition period and correct this overextrapolation. These results have implications for the behavioural aspects of capital markets in both countries.     

Corporate Sell‐offs in the UK: Use of Proceeds,Financial Distress and Long‐run Impact on Shareholder Wealth

This study examines the long‐run return performance following UK corporate sell‐off announcements. We observe significant negative abnormal returns up to five years subsequent to sell‐off announcements. Our finding is robust to various specifications, irrespective of the intended use of proceeds. We also find a significantly positive association between long‐run abnormal returns and the magnitude of cash proceeds for sellers reducing corporate debt as well as for sellers with deeper financial distress or higher growth prospects. Overall, we find that UK corporate sell‐offs are associated with declines in subsequent shareholder wealth.     

An Exploration of the Conditional Timing Performance of UK Unit Trusts

Abstract:  We examine the conditional market timing performance of UK unit trusts between January 1988 and December 2002. We find no evidence of superior conditional market timing performance by UK unit trusts either across different portfolios of trusts or by individual trusts. We also find that benchmark investing is significant for UK unit trusts and trusts have high numerical risk aversion to deviations from the benchmark. Our findings suggest that UK trusts act like benchmark investors.     

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

The long‐run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the “dichotomous expectations hypothesis” which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long‐run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long‐run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.     

Persistent Doubt: An Examination of Hedge Fund Performance

We examine whether performance persistence is suspicious. Top quintile portfolios formed on the Sharpe ratio, alpha, and information ratio persistently outperform similarly constructed mediocre third quintile portfolios throughout our sample period, but performance is more modest and less persistent when portfolios are formed on the excess manipulation‐proof performance measure (EMPPM). By selecting funds formed on ranking by Sharpe and information ratios, investors also select funds that have persistently doubtful performance according to the doubt ratio. In contrast, portfolios formed on alphas and especially the EMPPM have much less excess and persistent doubt.     

Ownership Structure, Firm Performance and Top Executive Change: An Analysis of UK Firms

The results of this paper reveal a significantly negative relationship between the equity stake owned by a senior executive and the likelihood that this executive will be removed from office. We also establish the existence of a strong positive relationship between poor company performance and the likelihood that the top managers responsible will be forced out of their firms; this forced departure only tends to occur when the managers' stake in the firm is less than 1%; as the level of ownership rises, managers become increasingly entrenched in their posts. The stock market reaction to management change is greatest (a) when the departure is unexpected and (b) when the dismissed executive owns more than 5% of the equity of his company. This study also examines the influence of other aspects of ownership structure and board composition upon the likelihood of a top executive dismissal.     

企业收购绩效与公司治理——内地和香港上市的中国企业实证分析

本文以A股和H/R股上市公司为样本,采用事件分析法、Pearson相关分析和回归分析,对企业收购绩效与公司治理结构进行了实证研究,结果表明目前A股市场的收购活动对企业绩效的影响是负面的,而H/R股的收购对绩效的影响并不显著。主要原因在于投资者法律保护环境及公司内外部治理等方面存在差异,据此认为上市企业要慎重对待收购行为,并提出了完善公司治理机制的相关建议。     

Corporate Acquisitions and the Operating Performance of Malaysian Companies

We report improvements in long run operating performance for a sample of Malaysian companies that made acquisitions over the period 1988–1992. As the sample selected consists of acquisitions of private target companies, the analysis allows us to focus on the possibility of changes arising from non-disciplinary sources. The reported improvements do not appear to have been achieved by sacrificing the long-term viability of the combined firms in pursuit of shortterm objectives. However, as the target companies in the current study were previously privately-owned businesses, researchers and policy makers should be wary before generalising from these results.     

An Empirical Examination of U.K. International Unit Trust Performance

We examine the performance of U.K. unit trusts with international equity objectives between January 1985 and December 2000 using four international factor models. The international version of the Carhart (1997) model performs the best in explaining the cross-section of international stock returns. There is little evidence of superior performance by international trusts relative to the global models. We also find that the choice between a local and global version of the Carhart model has a significant impact on the relation between the investment sector of the trust and performance.JEL classification: G10, G12