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Book part
Publication date: 22 November 2012

Akie Iriyama, Jason W. Park, Franky Supriyadi and Haibin Yang

Mergers and acquisitions (M&As) typically accelerate target top management team (TMT) executive departures. Market discipline and Relative Standing are two major and…

Abstract

Mergers and acquisitions (M&As) typically accelerate target top management team (TMT) executive departures. Market discipline and Relative Standing are two major and competing economic and sociological explanations for this phenomenon which lack a satisfactory theoretical integration. To fill this gap in the literature, we model the M&A market as a complex adaptive system composed of TMTs which rid themselves of executives via self-organized critical processes, generating M&A market-level properties that are emergent, or not easily explained with reference to the individual TMTs. The observation of an emergent power law distribution in target TMT executive retention rates for M&A activities in the United States supports our interpretation.

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Article
Publication date: 31 December 2020

Sheng-Hung Chen, Feng-Jui Hsu and Ying-Chen Lai

There is little known globally on the association among the independent shareholder, board size and merger and acquisition (M&A) performance. This paper addresses the…

Abstract

Purpose

There is little known globally on the association among the independent shareholder, board size and merger and acquisition (M&A) performance. This paper addresses the global issue about cross-border M&A in banking sector, particularly exploring the role of difference in the independent shareholder and board size between acquirer and target banks on synergy gains based on the international study.

Design/methodology/approach

Based on cross-border bank M&As data on 59 deals from 1995 to 2009, we initially apply social network analysis techniques to explore the country connectedness of the acquirer-target banks in cross-border M&As. Ordinary least squares (OLS) with robust standard errors is further used to investigate synergy gains within the difference in the degree of bank independent shareholder and board sizes between the acquirer and target banks.

Findings

Our results indicate that the acquiring banks are generally interconnected with the targeted banks and that some of acquiring banks are clearly concentrated in Asian countries including China, Hong Kong, and Philippines. Moreover, we find that cross-border M&As with larger difference in independent shareholders between the bidder and target bank would result in higher synergy gains in all cases of takeover premiums on 1 day, 1 week and 4 weeks. In addition, financial differences between the bidder and target banks have a significant impact on synergetic gains, a topic not explored in previous studies. There is no evidence that institutional and governance differences between bidder and target bank have significant cross-border impacts on takeover premiums with respect to 1 day, 1 week and 4 weeks, respectively.

Originality/value

This paper contributes to the literature by exploring the international issue about the role of difference in the degree of bank independent shareholder and board sizes between acquirer and target banks on synergy gains. Based on bank cross-border M&As data on 59 deals from 1995 to 2009, we initially apply social network analysis to explore the country connectedness of acquirer-target bank in cross-border M&As, while ten ordinary least squares (OLS) with robust standard errors is used to investigate synergy gains within the difference in the degree of bank independent shareholder and board sizes between acquirer and target banks.

Details

Library Hi Tech, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-8831

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Article
Publication date: 1 March 2013

Nipun Agarwal and Panlop Zeephongsekul

It is hard to accurately price a merger or acquisition, primarily as there are psychological factors that impact such pricing. As a result, it is hard for traditional…

Abstract

Purpose

It is hard to accurately price a merger or acquisition, primarily as there are psychological factors that impact such pricing. As a result, it is hard for traditional financial models to accurately undertake valuations for merger or acquisition transactions. The purpose of this paper is to develop a two‐person merger and acquisition (M&A) game theoretic model that will analyse if the offer price provided by an acquirer should be equal to the mid‐point of the acquirer's offer and the target's bid price. It will also analyse if the acquirer will do better by being risk taking or risk averse and if the target will do better by optimistic or pessimistic in this model.

Design/methodology/approach

This paper analyses how an incomplete information game with prospect theory can be used to value M&A transaction more accurately by considering the impact of psychological factors on pricing.

Findings

It is found that acquirers do not always have to increase the offer price in order to successfully purchase the target firm. Based on the behavioural type of the acquirer and target, it could be possible that the acquirer could even lower the offer and the target firm would still be willing to successfully complete the M&A transaction.

Originality/value

The original aspect of this paper is that it links behavioural types to M&A valuation and the success of M&A transactions. Such a model has not been developed before and it shows that M&A transactions are not always completed by the acquirer increasing their offer price.

Details

Studies in Economics and Finance, vol. 30 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 5 March 2018

Lawrence Kryzanowski and Trang Phuong Tran

This paper aims to test the extent to which downward bias due to a floating-point exception in probability of informed trading (PIN) estimates obtained using the Easley…

Abstract

Purpose

This paper aims to test the extent to which downward bias due to a floating-point exception in probability of informed trading (PIN) estimates obtained using the Easley, Hvidkjaer and O’Hara (EHO; 2002) method is remedied using the Yan and Zhang (YZ; 2012) method. The paper also aims to test the sample-size sensitivity of EHO PIN and identify PIN determinants for acquirers and targets in the biotech sector.

Design/methodology/approach

EHO and YZ PIN performances are compared for US biotech acquirers and targets around their mergers and acquisition (M&A) announcements. The sampling method of Kryzanowski and Lazrak (2007) is used to assess sample-size sensitivity of announcement window EHO PIN estimates. Cross-sectional regressions are estimated to identify PIN determinants.

Findings

EHO and YZ PIN are not significantly different. EHO PIN exhibits significant sample-size sensitivity. Information leakage prior to M&A announcements is strongly affected by some firm characteristics. Significant determinants of PIN behavior around M&A announcements include insider and institutional holdings and research and development (R&D) expense.

Research limitations/implications

Findings imply that PIN partially reflects the activities of insiders and other informed investors about takeover intentions. Subsequent research can examine PIN behavior around pre-announcement rumors for M&As in the same or other industries and for potential targets that are peers of the M&A targets.

Originality/value

This paper contributes to the ongoing debate in the empirical finance literature on whether PIN measures informed trading by examining its behavior and the importance of some methodological issues associated with its use in examining market behavior around M&A announcements.

Details

Studies in Economics and Finance, vol. 35 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 8 May 2017

Seungryul Ryan Shin, John Han, Klaus Marhold and Jina Kang

The purpose of this study is to investigate the effects of open innovation, especially focusing on technological M&A, on subsequent innovation and changes to the firm’s…

Abstract

Purpose

The purpose of this study is to investigate the effects of open innovation, especially focusing on technological M&A, on subsequent innovation and changes to the firm’s core technological portfolio.

Design/methodology/approach

The study suggests three types of core technological areas, based on prior focus and experience in technological categories. These are 1) the existing core area, in which the acquirer firm retains its knowledge and expertise, 2) the enhanced core area, where knowledge and expertise in the acquirer firm’s insufficient areas are strengthened, and 3) the new core area, i.e. new knowledge fields in which the acquirer firm ventures into. The study then analyzes the effects of two key knowledge characteristics of the target firm, similarity and complementarity, on post-M&A innovation outcomes in each of the three core technological areas.

Findings

The results confirm that while none of the investigated knowledge characteristics of the target firm is advantageous for post-M&A innovation outcomes in existing core areas, similarity of the target firm does facilitate post-M&A innovation outcomes in enhanced core areas. Moreover, the results confirm that complementarity of the target firm is beneficial for post-M&A innovation outcomes in new core areas.

Originality/value

The study explains the reconfiguration mechanism of a firm’s core technological portfolio. It also suggests an extended framework to analyze innovation outcomes in more detail. Moreover, the study helps to explain why most M&As result in failure.

Details

Journal of Knowledge Management, vol. 21 no. 3
Type: Research Article
ISSN: 1367-3270

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Article
Publication date: 21 November 2016

Armin Varmaz and Jonas Laibner

This paper aims to empirically analyze the success of European bank mergers and acquisitions (M&As) by an analysis of the shareholder value implications of stock market…

Abstract

Purpose

This paper aims to empirically analyze the success of European bank mergers and acquisitions (M&As) by an analysis of the shareholder value implications of stock market reactions to announced and canceled M&As in the period from 1999 to 2015.

Design/methodology/approach

The analysis of a sample of 467 announced and 54 canceled European bank M&As is conducted using event study methodology. The determinants of the shareholder value creations in M&A are observed in cross-sectional regressions. The likelihood of M&As being canceled is estimated in logit regressions.

Findings

The paper finds that European bank M&As have not been successful in terms of shareholder value creation for acquiring banks, whereas targets experienced significant value gains. Abnormal returns for bidders and targets exhibit the same characteristics upon the announcement of M&As that are canceled at a later date, whereas the results for transaction cancelations deviate. Targets experience negative abnormal returns at a larger size than upon the transaction announcement. The findings for bidders are striking, as they destroy shareholder value upon the transaction cancelation, also, consequently they suffer twice. In particular, banks with higher profitability, higher efficiency and lower liquidity experience negative abnormal returns around the announcement dates. Negative abnormal returns prior to the transaction announcement and provision for loan losses increase significantly the likelihood of M&A cancelation.

Originality/value

This paper contributes to the literature expanding existing analyses to the shareholder value implications of canceled European bank M&As in a 17-year long time period. The findings reveal the destructive characteristics of canceled bank M&As and provide innovative insights into European capital market reaction to canceled M&As.

Details

The Journal of Risk Finance, vol. 17 no. 5
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 3 April 2020

Marjan Abbasi

The purpose of this paper is to investigate the effect of complete versus partial observations of service failure and recovery. This study also aims at investigating the…

Abstract

Purpose

The purpose of this paper is to investigate the effect of complete versus partial observations of service failure and recovery. This study also aims at investigating the effect of observing customers’ need for cognitive closure and types of compensation that a service provider offers.

Design/methodology/approach

Two experiments are conducted to test the research hypotheses. The authors use scenarios describing failure and recovery encounters that occur to a target customer at restaurant settings, and through manipulation of complete versus partial observations, they investigate observers’ attitudes and behavioral intentions.

Findings

The results suggest that customers with a partial observation are less forgiving than those with a complete observation. In particular, the former sympathized more with a target customer, blamed a service provider more and a target customer less and had lower repurchase intentions than the latter. The authors find that the need for cognitive closure heightens this tendency following a partial observation of service failure. They also find that following a complete (versus partial) observation, observers reacted more favorably to service recovery when it included (versus did not include) monetary compensation.

Research limitations/implications

This research studies the effect of locus of causality following a partial versus complete observation. Future research could further examine the effect of stability and controllability. Also, the authors examined the effect of the need for cognitive closure on evaluations of service failure following a partial versus complete observation. Future research could examine the effect of some other individual difference variables.

Practical implications

The results offer some measures to be taken by practitioners. In particular, practitioners are advised to not offer monetary compensation when majority of observers have had a partial observation. Moreover, they are advised to offer some explanation in a timely and effective manner to ensure observers who are under the negative impact of a partial observation have some information so that they revisit their service evaluations.

Originality/value

The literature assumes that in failure and recovery incidents, all observing customers would know the entire story. This research challenges this assumption and highlights the key role of observation type (partial versus complete observation). Further, this research examines the effect of the need for cognitive closure on service evaluations following a partial versus complete observation. The current research finds that supposedly favorable measures by a firm (i.e. monetary compensation) may in fact backfire when a partial observation is at play.

Details

European Journal of Marketing, vol. 54 no. 4
Type: Research Article
ISSN: 0309-0566

Keywords

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Article
Publication date: 20 July 2015

K. Smimou

Do regional equity market conditions (bear market) affect the financial performance of firms involved in cross-border mergers and acquisitions (M & A)? If so, is…

Abstract

Purpose

Do regional equity market conditions (bear market) affect the financial performance of firms involved in cross-border mergers and acquisitions (M & A)? If so, is there a clear difference between inward and outward M & A in selected regions? The author addresses these questions using a sample of cross-border M & A between 1990 and 2013 in three major geographical regions of the emerging markets: Brazil, Russia, India, and China (BRIC), Eastern Europe, and Africa. The author finds that regional equity market conditions – such as bear equity conditions – along with direction of the cross-border M & A (inward vs outward), and differences in economic fundamentals among these regions carry valuable information and have real effects on market reactions to the announcement of cross-border M & A transactions. The paper aims to discuss these issues.

Design/methodology/approach

Using an empirical approach, the author takes a regional perspective, with emphasis on three regions (BRIC, Eastern Europe, and Africa), and aim to determine the impact of the state of the regional equity market (bear stock market), and direction and duration of the M & A on market reactions to the announcement of cross-border M & A.

Findings

The author documents the impact of regional equity market conditions on the financial performance of firms involved in cross-border M & A. The author underlines that differences in economic fundamentals among regions carry valuable information and have real effects on the performance of target firms.

Practical implications

On the one hand, merger arbitrage investors are keen to learn how to profit and position their investments accordingly during those periods. Therefore, this study has also put the limelight on the underlying factors that influence the market reaction around the M & A announcement at the regional level and clearly shows the additional benefits of regional market conditions, direction of the transactions, and the timing to highlight the positive gain of those equity investments regarding the emerging markets. On the other hand, as the purpose of the study is to delve into the market reactions to the M & A announcement while taking into consideration some relevant factors such as regional equity market conditions to assist companies’ managers and CEOs to effectively choose the right time.

Social implications

By incorporating the result presented in this study, another “family” of mutual funds, beyond just the combination of risky assets and the riskless asset is being introduced. Those investment portfolios which take into account merger and/or any opportunistic strategies are tailored more to the needs of various clienteles. For assisting the analyst and portfolio manager, the intuitive character of the result makes it versatile and easy to use by investment firms as an additional decision tool.

Originality/value

To the author knowledge, this is the first study that delves into the market performance of companies involved in cross-border M & A in the emerging markets by taking a regional perspective and aiming to determine the impact of the state of the regional equity market (bear stock market) on the M & A. It offers additional support to those institutional investors who are pursuing international diversification across various countries including emerging markets such that bear equity conditions (recessions in the regional stock markets) have an additional negative impact and a real effect on the performance of target firms.

Details

International Journal of Emerging Markets, vol. 10 no. 3
Type: Research Article
ISSN: 1746-8809

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Book part
Publication date: 19 September 2014

Cheng-Wei Wu and Jeffrey J. Reuer

In M&A markets, acquirers face a hold-up problem of losing the value of investments they make in due diligence, negotiations, and post-acquisition planning if targets

Abstract

In M&A markets, acquirers face a hold-up problem of losing the value of investments they make in due diligence, negotiations, and post-acquisition planning if targets would pursue the options of waiting for better offers or selling to an alternative bidder. This chapter extends information economics to the literature on M&A contracting by arguing that such contracting problems are more likely to occur for targets with better outside options created by the information available on their resources and prospects. We also argue that acquirers address these contracting problems by using termination payment provisions to safeguard their investments. While previous research in corporate strategy and finance has suggested that certain factors can facilitate an acquisition by reducing a focal acquirer’s risk of adverse selection (e.g., signals, certifications), we note that these same factors can make the target attractive to other potential bidders and can exacerbate the risk of hold-up, thereby leading acquirers to use termination payment provisions as contractual safeguards.

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Article
Publication date: 2 August 2013

Chris Ratcliffe and Bill Dimovski

The purpose of this paper is to use Australian Real Estate Investment Trust (A‐REIT) data to empirically examine potential influencing factors on A‐REITs becoming a bidder…

Abstract

Purpose

The purpose of this paper is to use Australian Real Estate Investment Trust (A‐REIT) data to empirically examine potential influencing factors on A‐REITs becoming a bidder or a target in the mergers and acquisitions (M&A) area.

Design/methodology/approach

This study uses logistic regression analysis to investigate the odds of publically traded A‐REITs being either a bidder or a target as a function of a number of financial and corporate governance variables.

Findings

Prior research in the US REIT M&A area has shown that target size is inversely related to takeover likelihood; in contrast, the authors' Australian results show that size has a positive impact. Prior research on share price and asset performance has shown that underperformance increases the odds of an entity becoming a target, but this paper's results further support these findings and provide confirmation of the inefficient management hypothesis. For acquirers it was found that leverage, cash balances, management structure, the level of shares held by related parties and the global financial crisis have an important impact on bidder likelihood.

Practical implications

Given that the literature suggests that investors can earn significant positive abnormal returns by owning targets, but incur significant abnormal losses by owning bidders, at announcement, this study will be useful to fund managers and other investors in A‐REITs by investigating the characteristics of those firms that become targets and bidders.

Originality/value

This paper adds to the recent US REIT M&A literature by examining the second biggest REIT market in the world and reporting a number of factors that might influence A‐REITs to become targets or bidders.

Details

Journal of Property Investment & Finance, vol. 31 no. 5
Type: Research Article
ISSN: 1463-578X

Keywords

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