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1 – 10 of over 15000
Article
Publication date: 26 January 2023

Ralf Bebenroth and Kashif Ahmed

In this paper, the knowledge-based view of the firm is applied to theoretically elucidate and empirically examine the influence of target industry growth on premium payments in…

Abstract

Purpose

In this paper, the knowledge-based view of the firm is applied to theoretically elucidate and empirically examine the influence of target industry growth on premium payments in cross-border acquisitions. This study aims to extend internally driven Mergers and Acquisitions research efforts of acquirers to industry contingencies of targets by analyzing cross-border acquirers located within the group of seven (G7) countries.

Design/methodology/approach

This study’s investigation covers 209 cross-border acquisitions from 2012 to 2019 undertaken by firms located within the G7 countries. This paper used generalized estimation equations method to test the hypotheses applying Gaussian distribution for the dependent variable, an identity link function, exchangeable correlation structure and robust standard errors.

Findings

This study’s results reveal that target industry growth determines premiums. Furthermore, this study shows that acquirer industry growth, as well as acquirer slack, moderates this relationship. This study is built on the notion that industry contingencies influence premiums even when target firms are based in foreign countries.

Originality/value

To the best of the authors’ knowledge, unlike other studies, this is the first to explicitly focus on premiums for multiple cross-border acquisitions by hand selecting nine years of industry sale figures for 53 industries separately in each of the G7 nation countries (leading to 371 separate downloads of data samples). This study contends that industry growth of cross-border targets matters for premium payments.

Details

Multinational Business Review, vol. 31 no. 2
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 13 July 2018

Sean M. Davis, Jeffrey M. Coy and Fernando Guillen Solis

High short interest is associated with overvaluation, and the purpose of this paper is to find contradictions to the commonly held “overvaluation hypothesis” when merger and…

Abstract

Purpose

High short interest is associated with overvaluation, and the purpose of this paper is to find contradictions to the commonly held “overvaluation hypothesis” when merger and acquisition (M&A) targets are examined. This paper extends the work of Ben-David et al. (2015), who confirm high short interest indicates overvaluation when focused on acquiring firms.

Design/methodology/approach

Short interest is examined as a predictor of acquisition likelihood using longitudinal data for US firms from 2003 to 2013. How short interest impacts the premiums paid by acquiring firms is examined with target, acquirer and deal characteristics.

Findings

M&A targets have high short interest and short interest increases acquisition likelihood, suggesting undervaluation. Highly shorted firms also experience outsized reductions in share price prior to merger announcements, and the premiums paid are also significantly predicted by short interest levels.

Research limitations/implications

Short selling activity can be motivated for reasons other than overvaluation, and many short positions can be held for long periods before they are closed, leading to high short interest levels for extended periods. Therefore, investors and researchers are cautioned that high short interest levels may exist in stocks that have already declined in price and could be poised for a reversal.

Originality/value

This study adds to the growing body of work indicating that short interest might not be the signal of overvaluation most researchers accept it to be.

Details

Managerial Finance, vol. 44 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

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 global issue…

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.

Article
Publication date: 1 October 2000

Joanne Li and James S. Ang

Outlines the role of directors and previous research on their selection, reputation, relationship to firm performance and multiple directorships, noting criticism of those who sit…

Abstract

Outlines the role of directors and previous research on their selection, reputation, relationship to firm performance and multiple directorships, noting criticism of those who sit on many boards. Develops hypothese on the value directors provide through their time and expertise and tests them on a sample of 121 US firms being targeted for takeover 1989‐1993 to explore the link between pre‐offer and post‐offer firm performance and the number of directorships held by their directors. Presents the results, which suggest that directors with less time (i.e. more directorships) do not necessarily provide worse routine monitoring or lead to lower merger premiums. Recognizes some other factors affecting interpretation and calls for further research.

Details

Managerial Finance, vol. 26 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 18 June 2019

Hao Li, Edward Jones and Pierre de Gioia Carabellese

The purpose of this paper is to investigate whether ex ante board connections and director retention result in agency costs to target company shareholders in the form of reduced…

Abstract

Purpose

The purpose of this paper is to investigate whether ex ante board connections and director retention result in agency costs to target company shareholders in the form of reduced payment in mergers and acquisitions transaction.

Design/methodology/approach

The authors employ detailed data of ex ante board connection and director retention in the mergers and acquisition in the UK from 1999 to 2015. Ex ante board connections are measured as proportion of target and acquirer companies’ directors worked on the same board at any time prior to the takeover, while director retention is measured as proportion of target companies’ directors remains on board after the takeover is completed. For mergers and acquisition payment characteristics, the authors examine takeover premium, cash payment percentage and offer price adjustment.

Findings

The authors find that ex ante board connections and director retention lead to reduced offer prices and lower proportions of cash payment. Notably, when there is no connection and target directors are not retained, the authors find that the bidding companies increase their final offer by £14m more than in other scenarios. The authors also document strong evidence that ex ante board connections lead to a higher probability of director retention.

Originality/value

The paper highlights that ex ante board connections and director retention will lead to a significant cost on target company shareholders. The authors recommend that a more detailed set of information on ex ante board connections and intended target board retention should be disclosed.

Details

International Journal of Managerial Finance, vol. 16 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 2 July 2018

Wun Hong Su and Peter Wells

This paper aims to evaluate the relation between acquisition premiums and amounts recognised as identifiable intangible assets (IIAs) in business combination, in periods before…

1483

Abstract

Purpose

This paper aims to evaluate the relation between acquisition premiums and amounts recognised as identifiable intangible assets (IIAs) in business combination, in periods before and after transition to International Financial Reporting Standards (IFRS).

Design/methodology/approach

This is an empirical archival research using data from business acquisitions.

Findings

In the pre-IFRS period, there is evidence of firms recognising IIAs in business combinations having higher acquisition premiums. This association of acquisition premiums and IIAs ceased with transition to IFRS, notwithstanding the relative latitude provided in accounting standards for the recognition of IIAs.

Research limitations/implications

This paper complements the study by Su and Wells (2015) which founds little association between IIAs and performance subsequent to business acquisitions prior to transition to IFRS. The results here suggest that it is attributable to overpayment. Problematically, the incentives for opportunism remain and an issue requiring address is whether alternative sources of accounting flexibility in relation to business combinations exist, such as goodwill which is no longer subject to mandatory amortisation.

Practical implications

The results are consistent with accounting opportunism and suggest “overpayment” and accounting flexibility having an economic consequence. This would be expected to result in asset impairments in subsequent periods; however, there is little evidence of this occurring.

Social implications

These results have relevance for regulators concerned with the operation of regulation relating to business acquisitions (AASB 3) and intangible assets (AASB 138).

Originality/value

This paper complements a number of papers concerned with the recognition of IIAs in business combinations and confirms what many researchers in the area typically assume (triangulation).

Details

Accounting Research Journal, vol. 31 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 6 September 2013

John A. Doukas and Wenjia Zhang

This study investigates the implications of the cumulative prospect theory in the context of US bank acquisitions, with particular emphasis on its probability weighting component…

1697

Abstract

Purpose

This study investigates the implications of the cumulative prospect theory in the context of US bank acquisitions, with particular emphasis on its probability weighting component. Specifically, we examine whether gambling attitudes matter in US bank takeover decisions. The evidence demonstrates that offer price premiums and target announcement returns are much higher in bank takeover transactions involving targets with gambling (lottery) features (high skewness, high volatility, and low price). Overall, the results indicate that banking acquisitions are influenced by gambling attitudes.

Design/methodology/approach

To measure idiosyncratic skewness, we follow Harvey and Siddique (2000) and Kumar (2009) and decompose total skewness into its idiosyncratic and systematic components.

Findings

The evidence demonstrates that offer price premiums and target announcement returns are much higher in bank takeover transactions involving targets with gambling (lottery) features (high skewness, high volatility, and low price). In addition, we find that synergies and bidder announcement returns are lower in lottery‐type acquisitions. The patterns we document are stronger when bidding banks are bigger, target banks are smaller, investor sentiment is above the median, and the Chicago Fed National Activity Index is negative.

Originality/value

This is an original piece of work in the field of banking.

Details

Review of Behavioural Finance, vol. 5 no. 1
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 19 April 2018

Frederick Davis, Thomas Walker and Linyi Zhou

Within the context of mergers and acquisitions, the purpose of this paper is to clarify the relationship between the deal initiator and various outcomes of the deal, particularly…

Abstract

Purpose

Within the context of mergers and acquisitions, the purpose of this paper is to clarify the relationship between the deal initiator and various outcomes of the deal, particularly in consideration of the cash position of the acquiring firm.

Design/methodology/approach

Using hand-collected deal initiation data from various filings on the Securities Exchange Commission EDGAR online database, this paper performs a series of event study analyses, multivariate analyses, a Heckman two-step estimation procedure, and an instrumental variable approach to examine merger outcomes.

Findings

This paper finds that many merger and acquisition (M&A) outcomes (target and acquirer announcement returns, acquirer long-run returns, premiums, and the method of payment) are significantly related to deal initiation, particularly in consideration of the cash position of the acquiring firm. Overall, evidence is seen as consistent with the theory that “lemons” selectively approach cash-rich acquirers, often to the acquirers’ detriment.

Originality/value

This paper finds that target-initiated deals are not necessarily associated with poorer transaction outcomes for targets as contemporaneous studies suggest, and presents the first empirical evidence of M&A outcomes related to the deal initiator which are dependent on the cash position of the acquiring firm.

Details

International Journal of Managerial Finance, vol. 14 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 1 June 1991

Robert L Conn, Karen E. Lahey and Michael Lahey

This paper extends the merger pricing model associated with Larson‐Gonedes to the general question: how well does the premium developed from the pricing model forecast the…

356

Abstract

This paper extends the merger pricing model associated with Larson‐Gonedes to the general question: how well does the premium developed from the pricing model forecast the securities market reaction of the actual merger? Based on a sample of 91 common stock mergers, shareholders in participating firms incur wealth losses about half the time but the magnitude of the gains outweighs the losses such that statistically significant gains are reported for both buyers and sellers. Removal of market wide price movements further increases the gains to shareholders. However, the premium consistently overstates the gain obtained by acquired firms and bears no systematic relationship to the gains registered by shareholders of acquiring firms. Financial analyses of mergers have focused almost exclusively on mergers as “events” with resultant measurements in abnormal returns surrounding the merger announcement/consummation to shareholders, and occasionally bondholders, in both buying and selling firms. Recent reviews of these studies by Halpern (1983), Jensen and Ruback (1983), and especially Roll (1986) stress the tentativeness of the findings and the ambiguity of their interpretation. The common feature of all this analysis has been on the ex post valuation of the merger event by the securities market from an informational content perspective. Alternatively, these studies have evaluated indirectly whether the price premium paid in an acquisition exceeds, equals, or is less than the market's valuation of the net present value of the merger, and how the spoils/losses are distributed between acquirers and acquirees. But never is the bid premium itself determined and then compared to the market's reaction upon public announcement. As Roll argues, the merger process involves three steps: “First, the bidding firm identifies a potential target firm; second, a ‘valuation’ of the equity of the target is undertaken…; third, the ‘value’ is compared to current market price… If value exceeds price, a bid is made…” Roil (1986, p. 198). This paper links the price premium offered in mergers to the market's reaction to the news of the merger, or alternatively, it compares Roll's steps two and three. The merger pricing model used is the exchange ratio determination model developed by Larson and Gonedes (1969) and applied to mergers by Conn and Nielsen (1977). The pricing model, commonly cited in finance texts (eg. Copeland and Weston (1988, pp. 757–763), has the advantage of being deterministic and thus provides a direct measure of the bid premium subject to a pareto optimal wealth constraint for shareholders in both buying and selling firms. The principal question this paper asks is: Does the price premium provide a consistent, unbiased forecast of the market's reaction? This is an important question from both the bidding firms' and target firms' perspectives for several reasons. First, the terms of the negotiated merger may signal important information to the securities market regarding the degree of agency costs in the merging firms. For example, an excessively high negotiated price for the target may indicate either the bidder has inept management or management insulated from shareholder interests. Thus, the terms of a merger may reflect not only the participants' expectations regarding the merger itself, but also be influenced by existing — although previously unknown — agency costs. The signalling information contained in merger announcement may obviously mask the expectational information, creating ambiguity in interpretation of market reaction. Second, distribution of the market reaction for buyers and sellers is important not only to participating firms' shareholders, but also to the effectiveness of the market for corporate control. A perfectly competitive merger market assures that merger premiums equal the expected value of the increased market values of merging firms. Thus, divergences between premiums and subsequent market reactions may have important implications for assessing the degree of competitiveness in the merger market, and hence, the effectiveness of mergers as a disciplinary force in the market for corporate control. Finally, the adequacy of ex ante merger pricing models remains an unexplored issue. Using an improved methodology, the Larson and Gonedes (LG) model is expanded to adjust for market wide movements in PE ratios; thus, merger specific influences on wealth positions are more clearly focused upon in contrast to the earlier work by Conn and Nielsen (1977). The earlier finding by Conn and Nielsen that approximately one half of mergers sampled in the 1960s failed to meet the pareto wealth constraint for participating firms is therefore re‐examined with an improved methodology and more recent sample of mergers occurring through 1979. The paper is organised as follows. Section I reviews and critiques the Larson‐Gonedes merger pricing model. Section II describes the empirical methodology and sample. Section III presents the empirical results and Section IV concludes with a summary.

Details

Managerial Finance, vol. 17 no. 6
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 14 October 2013

Oneil Harris, Jeff Madura and Charmaine Glegg

Agency theory suggests that if managers are not monitored, takeover negotiations may be contaminated by agency conflicts, which may weaken a firm's bargaining position. This paper…

Abstract

Purpose

Agency theory suggests that if managers are not monitored, takeover negotiations may be contaminated by agency conflicts, which may weaken a firm's bargaining position. This paper argues that some blockholders are more effective monitors than others, and tests whether the negotiating power of a target or bidder is influenced by their respective blockholder composition. The paper aims to discuss these issues.

Design/methodology/approach

This paper classifies target and bidder outside blockholders as either aggressive monitors or moderate monitors, and tests whether the degrees of monitoring effectiveness influence a firm's share of the total wealth created by the takeover (a proxy for bargaining power).

Findings

This paper finds that firms that have the types of outside blockholders with a greater tendency to monitor managers elicit higher takeover gains. This suggests that negotiating power in takeovers is conditioned on the types of blockholders that monitor the target and bidder. The results support the premise that better monitoring leads to higher gains for shareholders in a takeover. In particular, the findings suggest that the greater the tendency of outside blockholders to monitor managers, the lower the level of takeover-related agency conflicts and the stronger a firm's relative bargaining power.

Originality/value

These findings imply that agency conflicts on either side of a takeover bid may be reduced by better monitoring, but especially among bidders.

Details

Managerial Finance, vol. 39 no. 11
Type: Research Article
ISSN: 0307-4358

Keywords

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