M&A successes: Breadth, depth, and deal completion time in the US semiconductor industry

Most previous studies examining M&As (mergers and acquisitions) have focused on the post-merger integration process. While there have been studies that have partially investigated the importance of deal completion, we argue that firms could learn to increase their deal completions by leveraging their experience from prior successful acquisitions and that their cumulative success could reduce the deal completion time; that is, the time from the announcement of the deal to its resolution. To address this unexplored issue about M&As, we investigated whether prior intra- and/or inter-industry acquisition experiences helped accelerate subsequent focal acquisitions in the semiconductor industry, which is characterized by rapid technological innovation. We tested our hypotheses on data consisting of 323 acquisition deals in the US semiconductor industry between 2000 and 2013. The results showed that both prior intra- and inter-industry acquisition experiences significantly reduced deal completion time. JEL CLASSIFICATION M10

Corporate Takeovers and Non-Financial Stakeholders

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.

Do mergers and acquisitions affect information asymmetry in the banking sector?

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.

Probability of mergers and acquisitions deal failure

Purpose The purpose of this paper is to investigate whether the probability of deal success/failure in mergers and acquisitions (M&As) transactions is influenced by a range of deal, firm and country-specific characteristics which tend to affect acquirers’ shareholder returns. The specific hypotheses under investigation relate to the method of payment (cash versus stock), target status (listed versus non-listed), diversification (domestic versus cross-border and industry-wide) and acquirers’ prior bidding experience. Additionally, the authors also investigate whether announced deals reflect an expectation about likelihood of deal completion. Design/methodology/approach The authors analyse the probability of deal success/failure in M&As by combining event study and probit regression-based methods. The authors use the standard event study methodology to calculate acquirers’ abnormal returns for up to 10 days before and after the announcement date. In the probit model, the dependent variable is the probability of deal i being failure depending on four sets of explanatory variables: method of payment, target status, diversification and acquirer bidding experience, along with a set of control variables. Findings The findings from event study confirm that market reaction is indifferent to whether announced deals are likely to be successfully completed or not, consistent with the efficient markets hypothesis. However, the results from cross-sectional, cross-country regressions confirm that the aforementioned deal characteristics, as well as certain firm and country level attributes do influence the likelihood of whether an announced deal is subsequently completed or terminated. Originality/value In examining whether the specific characteristics affecting the likelihood that M&A transactions, once announced, will ultimately succeed or fail, it seems natural to ask whether the market reaction at the time of deal announcement reflects an expectation regarding deal completion. This could be associated with specific deal or firm-level characteristics influencing shareholder returns or risk, and represents a unique contribution of this study, over and above the use of a global sample of M&A data. The empirical analysis investigates these issues by using an extensive, global sample of 46,758 M&A transactions from 180 countries and 80 industries, which took place between the years 1977 and 2012.

Post-M&A Performance and Failure: Implications of Time until Deal Completion

Firm values change substantially between deal announcement and closing, risking renegotiation or termination. For deals that eventually close, does waiting longer to close benefit the acquirer post-M&A? We investigate whether the time that elapses until deal completion is an indicator of post-M&A performance and failure. We find that deals taking an optimum time to implement perform better, supporting the due diligence hypothesis, while taking too long to close is an indication of poor post-M&A performance and subsequent failure, supporting the overdue hypothesis.

Hard Marriage with Heavy Burdens: Organized Labor as Takeover Deterrents

We examine how labor power affects a firm’s takeover exposure and merger gains. Using a regression discontinuity design that relies on “locally” exogenous variation in labor power generated by close-call union elections, we find that increased labor power significantly reduces a firm’s takeover exposure, reduces target offer premium and announcement returns, and prolongs deal completion duration. The results are stronger for more powerful and conflict-provoking unions. Bidders of unionized targets are experienced, are tough negotiators, and face fewer union threats by themselves. Our paper provides new insights into the real effects of shareholder-employee conflict regarding the market for corporate control. (JEL G34, G30, J51) Received: February 9, 2019; editorial decision January 15, 2020 by Editor Isil Erel. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.