How did the Sarbanes–Oxley Act affect managerial incentives? Evidence from corporate acquisitions

We examine the impact of incentive compensation on the riskiness of acquisition decisions before and after the passage of the Sarbanes–Oxley Act (SOX). Before SOX, equity-based compensation was positively related to changes in risk around acquisition decisions, but this relationship weakened after the introduction of SOX. The drop in post-SOX acquisition-related risk stems from how managers respond to compensation-based incentives in the new regulatory environment. We show that executive stock options and pay-risk sensitivity drive post-SOX managerial responsiveness to risk-taking incentives. We also document a post-SOX value-enhancing effect on long-term stock-price performance and total factor productivity through these same incentive compensation mechanisms. The results are robust to selection bias, simultaneity, measurements of risk, and the definition of incentive compensation.

Subprime Crisis – A Corporate Acquisition Opportunity?

Corporate acquisition can be considered as one of the best processes of corporate restructuring. This study is focused to evaluate the post-acquisition operating performance of listed Indian companies (acquirers) which have made acquisitions during subprime crisis period i.e. from FY 2007-08 to FY 2009-10. Paired sample t-test has been used on four operating performance indicators i.e. Return on Equity(ROE), Return on Assets (ROA), Operating Profit margin (OPM) and Operating Cash flow to Net Sales ratio (OCF/Net Sales) to check whether operating performance of acquirers has significantly improved post-acquisition. This study has revealed that there is no significant improvement in firms’ operating performance based on financial parameters i.e. Return on Equity (ROE), Return on Assets (ROA) and Operating Profit Margin (OPM), post corporate acquisitions made during subprime crisis period. The study finds that there was negative impact based on these parameters. Though Operating Cash Flow to Net Sales ratio has improved significantly for the companies which have made acquisition in FY 2007-08 and FY 2008-09 but similar findings could not be achieved for FY 2009-10. This study will find its significance in present scenario wherein corporate acquisitions are seen as the fastest way to achieve growth. Corporate world may derive its growth strategy from this study.

Knowledge exchanges, trust, and secretive geographies in merger and acquisition processes

Our current understanding of knowledge generation over geographical distance relies heavily on studies that focus on producer–user or headquarter–subsidiary settings. Less attention has been paid to the geographical particularities of knowledge exchanges in mergers and acquisitions, which involve high costs and an extraordinary degree of risk and uncertainty with potentially significant (positive or negative) consequences for the respective firms and regions alike. To keep the risks associated with such complex long-distance transactions at bay, buying firms strongly depend on robust knowledge about the structure and value of the target units while the sellers require reliable knowledge about the goals of the acquisition and the price the buyer is willing to pay. This paper aims to investigate the spatiality of related knowledge exchanges during merger and acquisition procedures by analyzing the role of face-to-face contacts and investigating the mechanisms to establish trust in undertaking such risky endeavors. Our empirical analysis focuses on national and international corporate acquisitions and takeovers involving firms located in Germany. It is based on semi-structured in-depth interviews with actors involved in mergers and acquisitions, conducted since 2012. We distinguish between the two extremes of relational and auction-based merger and acquisition procedures and systematically analyze in a process perspective (a) the conditions under which knowledge is exchanged over distance, (b) the importance of temporary proximity and how secretive geographies of meetings evolve, and (c) the ways in which trust is created and uncertainties are reduced.

Economies of Scope and Optimal Due Diligence in Corporate Acquisitions

This study develops a theory of due diligence in corporate acquisitions. Using a formal model, the study situates due diligence in the context of economies of scope, which are often sought by acquiring organizations that have incomplete information about such economies. Relatedness, the key determinant of economies of scope, and ambiguity, the key determinant of incomplete information, are used to derive the optimal due diligence effort and the returns to an acquiring organization that result from that effort. The derived predictions qualify both the general appeal to extensive due diligence and the general recognition of the costliness of due diligence. These predictions can be tested in future empirical research on corporate acquisitions and may guide corporate acquirers on the optimal allocation of their due diligence efforts in the mergers and acquisitions market.

Board interlocks and imitation in corporate acquisitions: A literature review and avenues for future research

Interlocking directorates create the conditions for social embeddedness and represent a key driver of the diffusion of strategies and practices (Okhmatovskiy & David, 2012). Among the multiple focuses of analysis, board interlocks have been regarded as a source of inter-organizational imitation in the context of corporate acquisitions (Xia, Ma, Tong, & Li, 2018; de Sousa Barros, Cárdenas, & Mendes-Da-Silva, 2021). Imitation indeed has been acknowledged as one of the primary implications of interlocking directorates (Shropshire, 2010). This study, therefore, offers an in-depth summary and discussion of how interlocks of business elites influence corporate acquisitions. Multiple contributions are provided. First, the paper develops a thematic analysis in which multiple research focuses are identified, namely acquisition activity and emphasis, acquisition timing in mergers and acquisitions (M&A) waves, acquisition process, and acquisition premium. Second, it elaborates on a number of potential avenues for future research. Specifically, it identifies three main lines of inquiry related to the imitation scope, performance at both firm- and industry-level, and potential theoretical cross-fertilizations. Moreover, methodological considerations are discussed especially in terms of operationalization choices and their implications. To the best of the author’s knowledge, this paper represents the first attempt to review the literature on the interlocks-acquisition field.