Target insiders' preferences when trading before takeover announcements: deal completion probability, premium and deal characteristics

PurposeThis paper aims to investigate the consequences of mergers and acquisitions (M&As) on information asymmetry in the banking sector. Specifically, the authors look at whether specific firm or deal characteristic influence information asymmetry levels between insiders and investors, as well as the impact of recent regulation such as the Dodd–Frank Act.Design/methodology/approachThe authors decompose the M&A process into three periods (pre-announcement, negotiation and post-completion period) and document changes in the information asymmetry levels between insiders and investors through the M&A process. The authors capture changes in information asymmetry using six different spread-based information asymmetry measures.FindingsThe authors find evidence that information asymmetry increases following M&A announcement and decreases following deal completion. These findings are more pronounced for acquisitions involving a private target, all-cash deals and for mergers, as opposed to acquisition of assets. We find that overall, successful mergers improve the quality of the information environment, while failed deals degrade it. Additionally, the enactment of Dodd–Frank reduced the magnitude of the changes in information asymmetry during the M&A process. The results are important to regulators, policy makers and investors.Originality/valueTo authors’ knowledge, this is the first study that looks at the effect of bank M&As on information asymmetry as well as the effect of regulations on information asymmetry.

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CEO Narcissism and the Takeover Process: From Private Initiation to Deal Completion

SSRN Electronic Journal ◽

10.2139/ssrn.1784322 ◽

2012 ◽

Cited By ~ 8

Author(s):

Nihat Aktas ◽

Eric de Bodt ◽

Helen Bollaert ◽

Richard W. Roll

Keyword(s):

Ceo Narcissism ◽

Deal Completion

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Does Government Stake Influence Cross-Border Deal Completion? Evidence from Brazil

Academy of Management Proceedings ◽

10.5465/ambpp.2014.154 ◽

2014 ◽

Vol 2014 (1) ◽

pp. 13556

Author(s):

Yingdan Cai ◽

Kees Van Veen ◽

Sathyajit Gubbi

Keyword(s):

Cross Border ◽

Deal Completion

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M&A deals completion and abandonment by Russian MNE

International Journal of Emerging Markets ◽

10.1108/ijoem-05-2016-0140 ◽

2019 ◽

Vol 14 (3) ◽

pp. 475-494 ◽

Cited By ~ 3

Author(s):

Lyubov Ermolaeva

Keyword(s):

Property Rights ◽

Host Country ◽

Business Environment ◽

Institutional Distance ◽

Negative Experience ◽

Content Type ◽

Rights Protection ◽

Property Rights Protection ◽

Deal Completion ◽

Business Freedom

PurposeThe purpose of this paper is to reveal how the host and the home countries’ formal institutions may affect mergers and acquisitions (M&A) abandonment by Russian multinational enterprises (MNEs), and how MNE industry can influence the results. The second objective of the study is to have a separate look at the negative experience, and to uncover its influence on M&A deal completion.Design/methodology/approachIn the study, a sample of 446 international M&A deals initiated by Russian MNEs in the period of 2000–2014 is empirically tested by means of logistic regression analysis.FindingsThe empirical analysis indicates that better business environment in the host country is crucially important whereas development of business freedom at home may make the international M&A less attractive and increases the likelihood of M&A deal abandonment. Thus, the larger the institutional distance by this indicator the more likelihood the deal is completed. Contrary results are implied for property rights: the larger the distance between Russia and host country, the lower likelihood of M&A deal completion. Failure experience decreases the likelihood of acquisition completion whereas international experience increases.Research limitations/implicationsThe study has number of limitations: individual-level variables were not included in the model; and a limited number of factors were tested due to availability of data and moderate sample size.Practical implicationsThe study indicates that better development of business freedom and moderate property rights protection in the host country are the most favorable factors for an M&A deal completion. Russian policymakers should realize that development of property rights protection in Russia ensures success of MNEs abroad, and development of business freedom reduces the outflow of capital from the economy.Originality/valueThe paper makes several theoretical and practical contributions: it contributes to institutional international business literature, indicating in which particular cases institutional distance has positive or negative effect on M&A completion. It also contributes to organizational learning literature, confirming that failures inhibit learning, and firms tend to repeat previous mistakes. Finally, the paper widens the scarce research on Russian MNEs, and on the role of the home country institutions for MNE’s behavior abroad.

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Deal Completion

The Venture Capital Investment Process ◽

10.1057/9780230110076_8 ◽

2010 ◽

pp. 187-206

Author(s):

Darek Klonowski

Keyword(s):

Deal Completion

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The Impact of Organizational Learning on the Cross-Border Acquisition’s Deal Completion and Duration : Evidence from U.S. Insurance Industry

INTERNATIONAL BUSINESS REVIEW ◽

10.21739/ibr.2020.12.24.4.1 ◽

2020 ◽

Vol 24 (4) ◽

pp. 1-20

Author(s):

Dam Yoo ◽

Eunmi Lee ◽

Young-Ryeol Park

Keyword(s):

Organizational Learning ◽

Insurance Industry ◽

Cross Border ◽

The Cross ◽

Deal Completion ◽

The Impact

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Corporate Takeovers and Non-Financial Stakeholders

Oxford Research Encyclopedia of Economics and Finance ◽

10.1093/acrefore/9780190625979.013.617 ◽

2021 ◽

Author(s):

Daniel Greene ◽

Omesh Kini ◽

Mo Shen ◽

Jaideep Shenoy

Keyword(s):

Large Body ◽

Corporate Ownership ◽

Corporate Takeovers ◽

Ex Post ◽

Acquiring Firms ◽

Contractual Relationships ◽

Big Picture ◽

Implicit And Explicit ◽

Deal Completion ◽

The Impact

A large body of work has examined the impact of corporate takeovers on the financial stakeholders (shareholders and bondholders) of the merging firms. Since the late 2000s, empirical research has increasingly highlighted the crucial role played by the non-financial stakeholders (labor, suppliers, customers, government, and communities) in these transactions. It is, therefore, important to understand the interplay between corporate takeovers and the non-financial stakeholders of the firm. Financial economists have long viewed the firm as a nexus of contracts between various stakeholders connected to the firm. Corporate takeovers not only play an important role in redefining the broad boundaries of the firm but also result in major changes to corporate ownership and structure. In the process, takeovers can significantly alter the contractual relationships with non-financial stakeholders. Because the firm’s relationships with these stakeholders are governed by implicit and explicit contracts, circumstances can arise that allow acquiring firms to fully or partially abrogate these contracts and extract rents from non-financial stakeholders after deal completion. In contrast, non-financial stakeholders can also potentially benefit from a takeover if they get to share in any efficiency gains that are generated in the deal. Given this framework, the ex-ante importance of these contractual relationships can have a bearing on the efficacy of takeovers. The ability to alter contractual relationships ex post can affect the propensity of a takeover and merging firms’ shareholders and, in turn, impact non-financial stakeholders. Non-financial stakeholders will be more vested in post-takeover success if they can trust the acquiring firm to not take actions that are detrimental to them. The big picture that emerges from the surveyed literature is that non-financial stakeholder considerations affect takeover decisions and post-takeover outcomes. Moreover, takeovers also have an impact on non-financial stakeholders. The directions of all these effects, however, depend on the economic environment in which the merging firms operate.

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