Large US bank takeovers in 2008: performance and implications

PurposeBecause systemically important banks' takeovers in the US were expected to contain the 2008 global financial crisis (GFC) but were found to have imposed large cost on shareholders, this paper examines the effectiveness of these acquisitions during the GFC and investigates what went wrong with the market for corporate control of large banks.Design/methodology/approachThis paper presents a model of the disciplinary takeover based on the efficient market hypothesis which provides appropriate measures for it to examine the financial performance of acquiring banks after takeover.FindingsThe results indicate that the takeover market for large banks was ineffective in two aspects: the market did not distinguish strong banks from weak banks before the crisis and acquirers performed worse after takeover. Such ineffectiveness reflects the fundamental deficiencies of large bank takeovers arising from some key distinguishing characteristics of large banks.Research limitations/implicationsThe sample size of systemically important banks' takeovers is small so large-sample standard statistical inferences cannot be used.Practical implicationsThe deficiencies of large bank takeovers need to be rectified in order to aid in resolving future crises.Originality/valueThis paper provides rare and detailed insight based on case studies of large US bank takeovers during the GFC.

Agency costs in the market for corporate control: evidence from UK takeovers

Purpose This paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015. Design/methodology/approach Using survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates. Findings This paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover. Practical implications Given the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy. Originality/value While the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.

Hedge Fund Activism and Corporate M&A Decisions

This paper shows that hedge fund activism is associated with a decrease in mergers and acquisitions (M&A) and offer premiums and an increase in stock and operating performance. Activist hedge funds improve target firms’ M&A performance by reducing poor M&A, diversifying M&A, and the M&A of firms with multiple business segments. Activist hedge funds improve target firms’ M&A decisions by influencing their governance practices. We show that our results are unlikely driven by selection bias. Overall, activist hedge funds play an important role in the market for corporate control by increasing the efficiency of target firms’ M&A activities through interventions. This paper was accepted by Gustavo Manso, finance.