Abnormal Returns to Stockholders of Firms Acquired in Business Combinations and Leveraged Buyouts

1992 ◽  
Vol 7 (2) ◽  
pp. 231-239 ◽  
Author(s):  
Khalil M. Torabzadeh ◽  
William J. Bertin
Keyword(s):  
Potential Risk ◽  
Abnormal Returns ◽  
Leveraged Buyouts ◽  
Related Factors ◽  
Business Combinations ◽  
Target Firms ◽  
Public Firm ◽  
Business Combination ◽  
Financial Characteristics ◽  
Acquisition Announcements

This study analyzes the returns to target stockholders under business combinations and leveraged buyouts surrounding the acquisition announcements. After controlling for the effects of transaction-related factors and firm-specific financial characteristics, target firms in business combinations are found to capture significantly greater abnormal returns compared to their counterparts engaged in leveraged buyouts. The findings imply that the potential risk-adjusted economic gains of a business combination significantly exceed the potential risk-adjusted productive gains associated with restructuring a public firm into a private concern through a leveraged buyout.

Financial characteristics of takeover targets: a French empirical evidence

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hicham Meghouar ◽  
Mohammed Ibrahimi
Keyword(s):  
Empirical Studies ◽  
Abnormal Returns ◽  
Control Group ◽  
Subprime Mortgage ◽  
Content Type ◽  
Financial Variables ◽  
Target Firms ◽  
Debt Capacity ◽  
Financial Characteristics ◽  
Available Information

PurposeThe purpose of this research is to highlight the financial characteristics of large French targets which were subject to takeovers during the period 2001–2007 and thereafter deduct the implicit motivations of acquirers.Design/methodology/approachUsing a global sample of 128 French listed companies (64 targets and 64 non-targets), the authors carried out Wilcoxon–Mann–Whitney testing and logistic regression in order to test nine hypotheses likely to discriminate between the two categories of companies (targets and non-targets).FindingsAccording to the results, target firms are more unbalanced in terms of growth resources and less rich in liquidity than their peers. They have unused debt capacity, offer greater opportunities for growth than firms in the control group and present low levels of value creation.Research limitations/implicationsThe main limitation of this study is regarding the sample size, limited by the exclusive use of large firms (deals of over $100m). The scope of this research could be broadened in future by including medium-sized companies.Practical implicationsThe authors believe that their results have two major implications. First, they enable market investors to achieve abnormal returns by investing in predicted targets through a portfolio of high takeover probability firms. Second, CEO of companies that are potentially targeted can assess their takeover likelihood in order to act and to manage such a situation for the benefit of their shareholders.Originality/valueThis research concerns the last wave of takeover prior to the subprime-mortgage financial crisis (2001–2007), a period that has not been sufficiently covered in empirical studies. This research contributes to the existing literature in two main respects. First, the results of this study improve our understanding of motivations for takeovers, particularly in the French context. Second, the introduction of new accounting and financial variables, not previously tested in the literature, enriches the available information concerning the profile of takeover targets.

scholarly journals Effects of business combinations on the competitive environment

2018 ◽  
Vol 5 (2) ◽  
pp. 51 ◽  
Author(s):  
Florentina Moisescu ◽  
Аnа-Mаriа Golomoz
Keyword(s):  
Development Strategy ◽  
Competitive Environment ◽  
Negative Effects ◽  
Business Combinations ◽  
The Development Strategy ◽  
Business Combination

<p>This paper deals with the results of the businesses combinations and the advantages felt in solving the problems of certain entities, the extension on other markets or obtaining increased quotas on the market. Also, businesses combinations can generate disadvantages regarding the access to credits or negative effects on the salary. A business combination is based on taking risks an has advantages as well as disadvantages, on both the short and the long term, while the decision of making it has in view the development strategy of the organisation. The aim of the paper is to analyze and balance the benefits and disadvantages of business combinations. It is questioned the need to use this method and its use only for the advantages obtained despite the existing disadvantages.</p>

scholarly journals Characteristics of Merging Firms in India: An Empirical Examination

2007 ◽  
Vol 32 (1) ◽  
pp. 27-44 ◽  
Author(s):  
B Rajesh Kumar ◽  
Prabina Rajib
Keyword(s):  
Cash Flow ◽  
Statistical Significance ◽  
Critical Role ◽  
Cash Flows ◽  
Logit Analysis ◽  
Empirical Examination ◽  
Sample Distribution ◽  
Advertising Intensity ◽  
Target Firms ◽  
Financial Characteristics

The process of corporate restructuring through mergers and acquisitions has occupied much relevance in post-liberalization period. The financial characteristics of a firm play a critical role in the merger decision process. This study analyses the distinctive financial characteristics of the acquirer and the target firms in the period of merger. In addition, the empirical challenge is to determine the measurable factors that make a firm attractive as a takeover target. The fundamental research focus is on the characteristics that make a firm an acquirer and on identifying those characteristics of a firm, which will have a significant impact on the probability that firms will be acquired. The ratios involved in the study were reflective of the financial and product market characteristics. The sample firms consisting of 227 acquirer and 215 target firms represented the mergers during the period 1993—2004. The distinctive characteristics of the acquirer and the target firms were analysed with Mann Whitney U test and Kolgomorov Smirnov test on the assumption of non-normality of the sample distribution. The final step involved using the logit regression to examine the likelihood that a given firm will be the target of an acquisition attempt. The same sample of target firms merged between 1993-2004 period and a random sample of 490 non-acquired firms based on a matched industry sector and similar size (sales) are obtained for the logit model estimation. The comparative study of the acquirer and the target firms in the year of merger and the logit analysis reveals the following: The size of the target firms was much smaller compared to the acquirer firms. The acquirer firms have higher cash flow, higher PE ratios, higher book value, higher liquid assets, and lower debt to total assets ratio, which are statistically significant when compared to the target firms. Some evidence points out higher leverage for the target firms especially for measures of market leverage. The lesser the liquidity position, greater the probability of a firm becoming a target. The larger firms are less likely to become acquisition targets. Logit coefficients are consistent with the size hypothesis and inefficient management hypothesis. The advertising intensity ratio and the cash flow to market value of assets show statistical significance based on logit results. The results of the study indicate that firms generating free cash flows and having low debt levels have a tendency to incur agency costs. Capital structure characteristics provide the acquirers and the target firms a motive for mergers. The acquirer firms with unused debt capacity can use mergers as a strategic business tool for gaining financial synergy.

The impact of sovereign rating events on bank stock returns

2017 ◽  
Vol 18 (4) ◽  
pp. 338-367 ◽  
Author(s):  
Haoshen Hu
Keyword(s):  
Stock Returns ◽  
Abnormal Returns ◽  
Share Price ◽  
Test Procedures ◽  
Related Factors ◽  
Content Type ◽  
Credit Rating Agency ◽  
Bank Stock ◽  
Domestic Banks ◽  
The Impact

Purpose This paper aims to investigate the impact of sovereign rating signals on domestic banks’ stock returns in a European context. Design/methodology/approach The author uses an event study technique to measure short-term bank stock abnormal returns that result from domestic positive or negative sovereign rating events. Then, test results from the univariate event studies are further scrutinised with the bank- and sovereign-related factors related to cross-sectional variations in abnormal bank returns. Findings The univariate results show that positive sovereign rating events do not lead to significant bank stock price reactions, while negative events are associated with negative share price effects on domestic banks. The multivariate regression results for the subsample of negative rating events show that the degrees of contagion effects depend on which credit rating agency issues the signal, on whether the events are preceded by other negative sovereign rating signals, and in some cases on the sovereign’s initial rating level and on the bank’s liquidity ratio, profitability level and size. Originality/value The study improves the test procedures used by Caselli et al. (2016) and sheds light on the bank valuation effect induced by massive negative sovereign rating signals during the crisis period. The results highlight the share price effect of sovereign events and address political implications of introducing risk weights for sovereign debts.

scholarly journals Analysis of Business Combination Implementation at PT China Construction Bank Indonesia

2018 ◽  
Vol 4 (2) ◽  
pp. 184
Author(s):  
Andita Wulandari K ◽  
Zanuar Arifin ◽  
Amrie Firmansyah
Keyword(s):  
Financial Accounting ◽  
Business Combinations ◽  
Business World ◽  
Financial Conditions ◽  
China Construction Bank ◽  
Technological Advances ◽  
Financial Failure ◽  
Qualitative Descriptive ◽  
Business Combination ◽  
Market Consolidation

<p>This study aims to review the implementation of mergers conducted by the company. In Indonesia, merger activities are regulated in Indonesia Statement of Financial Accounting Standards Number 22 (hereinafter referred to as PSAK 22) concerning Business Combinations. Increased merger activities in the business world are driven by changes in economic conditions. The rise of merger and acquisition activities was caused by various things, such as technological advances, increasing financial conditions, excess capacity/financial failure, international market consolidation and deregulation.</p><p>The research method used in this research is qualitative descriptive with case studies of business combination events that occurred between PT Bank Windu Kentjana Internasional, Tbk as the party which received the merger and PT Bank Antardaerah as the company which joined. Regarding ownership, the name of PT Bank Windu Kentjana Internasional, Tbk changed to PT China Construction Bank Indonesia, Tbk (PT CCB Indonesia, Tbk).</p>The results of this study indicate that in general, the consolidated report of PT CCB Indonesia, Tbk for the period ended December 31, 2016, in general, has been prepared by PSAK 22, 2015.

scholarly journals New Accounting Guidance For Business Combinations

2011 ◽  
Vol 1 (1) ◽  
Author(s):  
Allen W. McConnell ◽  
Bill D. Cox ◽  
John E. Elsea
Keyword(s):  
Accounting Standards ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Business Combinations ◽  
Accounting Principles ◽  
Business Combination

The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 Business Combinations in June 2001.  SFAS 141 supersedes Accounting Principles Board (APB) Opinion No. 16 Business Combinations and SFAS No. 38 Accounting for Preacquisition Contingencies of Purchased Enterprises.  APB Opinion 16 created two acceptable methods of accounting for a business combination, the purchase and the pooling of interests methods.  These two different methods often resulted in very different financial results for economically similar transactions.

scholarly journals An Analysis of Gains to US Acquiring REIT Shareholders in Domestic and Cross-Border Mergers before and after the Subprime Mortgage Crisis

2018 ◽  
Vol 10 (12) ◽  
pp. 4586
Author(s):  
Alan Wang ◽  
Yu-Hong Liu ◽  
Yu-Chen Chang
Keyword(s):  
Structural Changes ◽  
Abnormal Returns ◽  
Subprime Mortgage ◽  
Crisis Period ◽  
Cross Border ◽  
Increased Risk ◽  
Mortgage Crisis ◽  
Before And After ◽  
Subprime Mortgage Crisis ◽  
Acquisition Announcements

This paper examines the abnormal returns of acquiring real estate investment trusts (REITs) around the announcement of acquisitions before and after the subprime mortgage crisis. Based on 182 domestic and cross-border US REIT acquisition announcements from 2005 to 2010, the acquiring trusts experienced a 0.73% abnormal return, on average. When the sample was divided into pre-crisis, crisis, and after-crisis subsamples, the acquiring trusts enjoyed the largest abnormal returns (1.86%) for domestic acquisitions during the crisis period. Before the crisis, when the acquisition was cross-border, the target was private, or the transaction was cash-financed, the acquiring trust experienced larger abnormal returns. During the crisis period, the acquiring trust gained larger abnormal returns when the transaction value was larger. After the crisis period, the acquiring trust achieved less abnormal returns in cross-border mergers. For both pre- and after-crisis periods, the shareholders of the acquirer enjoyed larger abnormal returns when the mergers were cash-financed, regardless of whether the target was public or privately held. Neither the blockholder monitoring nor the signaling hypothesis can explain such value gains. The structural changes in the acquirer’s abnormal returns are possibly due to the increased risk aversion of the market participants following the crisis.

Sign in / Sign up

Export Citation Format

Share Document