Deal Initiation in Mergers and Acquisitions

2018 ◽  
Vol 53 (6) ◽  
pp. 2389-2430 ◽  
Author(s):  
Ronald W. Masulis ◽  
Serif Aziz Simsir
Keyword(s):  
Mergers And Acquisitions ◽  
Information Asymmetry ◽  
Private Information ◽  
Financial Constraints ◽  
Abnormal Returns ◽  
Financial Conditions ◽  
Self Selection ◽  
Weak Target ◽  
Merger Announcements

We investigate the effects of target initiation in M&As. We find target-initiated deals are common and that important motives for these deals are target economic weakness, financial constraints, and negative economy-wide shocks. We determine that average takeover premia, target abnormal returns around merger announcements, and deal value to EBITDA multiples are significantly lower in target-initiated deals. This gap is not explained by weak target financial conditions. Adjusting for self-selection, we conclude that target managers’ private information is a major driver of lower premia in target-initiated deals. This gap widens as information asymmetry between merger partners rises.

The role of boutique financial advisors in mergers and acquisitions

2018 ◽  
Vol 44 (2) ◽  
pp. 212-247 ◽  
Author(s):  
Anna Loyeung
Keyword(s):  
Mergers And Acquisitions ◽  
Information Asymmetry ◽  
Abnormal Returns ◽  
Jel Classification ◽  
Financial Advisors ◽  
Acquisition Performance ◽  
Cumulative Abnormal Returns ◽  
Acquiring Firms ◽  
Target Firms

This study examines the choice of boutique financial advisors in mergers and acquisitions, and the consequences of this choice on deal outcomes and post-acquisition performance. Boutique advisors often specialize in a particular industry and focus exclusively on providing advice in mergers and acquisitions. The results suggest that boutique financial advisors are preferred when the deal is considered complex and when information asymmetry is high. The study finds that the benefits of hiring a boutique advisor flow to both the acquirers and the target firms. Acquiring firms benefit in terms of improved post-merger performance, while target firms benefit in terms of higher completion of value-enhancing deals and positive cumulative abnormal returns. Overall, these results provide support for the growing popularity of boutique financial advisors in the Australian market. JEL classification: G24, G34

scholarly journals Abnormal Returns around Mergers and Acquisitions in the Nepali Stock Market

2021 ◽  
Vol 3 (1) ◽  
pp. 26-42
Author(s):  
Hari Prasad Pathak
Keyword(s):  
Stock Market ◽  
Mergers And Acquisitions ◽  
Financial Institutions ◽  
Economies Of Scale ◽  
Abnormal Returns ◽  
Market Model ◽  
Cross Sectional ◽  
Cumulative Abnormal Returns ◽  
The Impact ◽  
Merger Announcements

A merger includes two relatively equal entities that are combined to form one legal entity worth more than a sum of its two separate parts. In the last few years, many Nepali financial institutions have been consolidating through mergers and acquisitions. This paper aims to investigate how the stock market reacts when financial institutions announce mergers and acquisitions. This paper also examines the impact of cross-sectional variables on the abnormal returns obtained around merger announcements. The study covers 22 successful merger deals that occurred among 48 financial institutions over the period of 2004 to 2013. This paper used the event study method based on the market model to derive abnormal returns associated around the merger announcement date. The event dates are specified as the dates on which the mergers and acquisitions were announced. The results show that leaving a very few exceptional cases, none of the merged financial institutions received significant cumulative abnormal returns on the merger announcements, regardless of the use of different event periods. The cross-sectional regressions show that the pre-merger performance of target and relative market value are the significant influencing variables on acquirers' cumulative abnormal returns. The finding implies that Nepali financial institutions merge merely to increase their capital base without producing any synergistic effect. Therefore, they need strategic plans for choosing the right partner and achieving other benefits like synergy effect, economies of scale and cost reduction from mergers and acquisitions.

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

2021 ◽  
pp. 1-21
Author(s):  
Ludwig Erl ◽  
Florian Kiesel
Keyword(s):  
Mergers And Acquisitions ◽  
Capital Market ◽  
Market Reaction ◽  
Market Performance ◽  
Abnormal Returns ◽  
Brewing Industry ◽  
Efficiency Gains ◽  
Market Values ◽  
Jel Classifications ◽  
The Capital Market

Abstract This study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself. (JEL Classifications: G14, G34, L25, Q14)

scholarly journals ANALYZING ABNORMAL RETURN BEFORE AND AFTER THE ANNOUNCEMENT OF MERGER AND ACQUISITION IN 2018

2018 ◽  
Vol 1 (2) ◽  
pp. 14-22
Author(s):  
Sonny Haryanto ◽  
Umi Mardiyati ◽  
Agung Dharmawan Buchdadi
Keyword(s):  
Mergers And Acquisitions ◽  
Stock Price ◽  
Abnormal Return ◽  
Abnormal Returns ◽  
T Test ◽  
Testing Hypotheses ◽  
Paired Sample ◽  
Minute Period ◽  
Before And After ◽  
Observation Period

This study aims to analyze the abnormal returns before and after the announcement of mergers and acquisitions in the companies listed on the IDX 2018. In this study the observation period taken was three days before and after the announcement of mergers and acquisitions with the number of samples observed were 9 companies. The method for calculating abnormal returns used is the market adjusted return by using an intraday stock price of 15 minutes. Based on testing hypotheses conducted by paired sample t-test, it was found that there were no significant differences in abnormal returns before and after the announcement of mergers and acquisitions in each 15 minute period.

Announced versus canceled bank mergers and acquisitions

2016 ◽  
Vol 17 (5) ◽  
pp. 510-544 ◽  
Author(s):  
Armin Varmaz ◽  
Jonas Laibner
Keyword(s):  
Mergers And Acquisitions ◽  
Shareholder Value ◽  
Abnormal Returns ◽  
Bank Mergers ◽  
Cross Sectional ◽  
Market Reactions ◽  
Content Type ◽  
European Bank ◽  
Long Time ◽  
Loan Losses

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.

Effect of Stock Price Information on Timing of Share Repurchases

2019 ◽  
Vol 4 (1) ◽  
pp. 36-46
Author(s):  
Chong-Meng Chee ◽  
Nazrul Hisyam Bin Ab Razak
Keyword(s):  
Cost Saving ◽  
Private Information ◽  
Stock Price ◽  
Stock Return ◽  
Market Timing ◽  
Abnormal Returns ◽  
Jel Classification ◽  
Share Repurchases ◽  
Price Informativeness ◽  
Stock Price Informativeness

Objective - This study investigates whether private information newly incorporated into stock price enhances performance in timing share repurchases. Methodology/Technique - Cost saving gained in share repurchases is used a proxy for performance of market-timing in share repurchases and firm-specific stock return variation is used to gauge stock price informativeness. A sample of 334 U.S. repurchasing firms are tested using panel data regression. Findings - The paper concludes that managers possess better market timing skill by obtaining more cost saving from their share repurchases when private information is reflected in stock price. Stock price informativeness may be the tool for managers to improve their market timing skill to take advantage of the stock market. Furthermore, firms with smaller size and a higher market-to-book ratios, and firms with higher cash-to-assets ratios are found to achieve more cost saving in buying back their shares indicating that these firms are able to time the market in share repurchasing. Novelty – Despite numerous previous studies focusing solely on using share repurchases announcement for computing cumulative abnormal returns in testing managerial market timing, this study contributes to the literature in several ways: (i) providing evidence relating stock price informativeness and performance of market-timing in share repurchases; (ii) developing a better timing measure constructed using actual repurchasing data; (iii) adopting a cost saving measure as the timing measure instead of cumulative abnormal return. Type of Paper - Empirical. Keywords: Managerial Learning Hypothesis; Market Timing; Stock Repurchase; Stock Price Informativeness; Firm-specific Stock Return Variation. JEL Classification: G12, G13, G14. DOI: https://doi.org/10.35609/jfbr.2019.4.1(5)

CEO social capital and asset sell-offs

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Charles Danso ◽  
Margarita Kaprielyan ◽  
Md Miran Hossain
Keyword(s):  
Decision Making ◽  
Social Capital ◽  
Information Asymmetry ◽  
Abnormal Returns ◽  
Chief Executive ◽  
Multivariate Regression Analysis ◽  
Market Model ◽  
Good Decision ◽  
Content Type ◽  
Announcement Returns

PurposeRecent studies explore how chief executive officer (CEO) social capital affects corporate decision-making. Well-connected CEOs can have greater access to information, which can lead to better corporate decisions or permit them to amass power from hierarchy status and make self-serving decisions. This study examines whether investors perceive CEO social capital as a signal of good decision-making (assuming information asymmetry) surrounding asset sell-off events.Design/methodology/approachThe authors use multivariate regression analysis to examine the effect of CEO social capital on the cumulative abnormal returns (CARs) of the asset buyers and sellers. CARs are estimated using a market model in the period proximate to asset sell-off announcements.FindingsThe authors find that CEO social capital is positively associated with announcement returns of the asset sellers. Moreover, the positive effect of CEO social capital on announcement returns is more pronounced for sellers facing greater information asymmetry. An analysis of post-announcement stock performance reveals that the seller CEO social capital is associated with additional value generated for the shareholders of the seller after a month from the announcement date, especially if the transaction price is disclosed. Overall, findings are consistent with the argument that CEO social capital provides value in high information asymmetry environment.Originality/valueTo the authors' knowledge this is the first study to examine the effect of CEO social capital on the shareholders' wealth created by divestitures.

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