Mergers & Acquisitions II
Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM
- Chair: Margarita Tsoutsoura, Cornell University
Advertising, Attention, and Acquisition Returns
AbstractWe show that targets with pre-takeover advertising obtain higher premiums while their acquirers
experience lower merger announcement returns. These economically significant effects are
consistent with the hypothesis that advertising allows target management to increase the firm’s
profile and negotiating power. The effect is stronger where expected: for targets in business-toconsumer
industries, with short-sale constraints, and with higher managerial ownership. Further,
advertising targets are more likely to initiate their own sale, be pursued by multiple bidders,
receive revised increased bids, capture more of the merger surplus and in the event of a failed
acquisition, experience a permanent revaluation of about 1%.
A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers
AbstractWe examine whether Bilateral Investment Treaties (BITs) remove impediments to foreign investment by helping enforce contracts and protecting the property rights of foreign investors. We find that BITs have a large, positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. Most of this increase is driven by capital flowing from developed economies to developing economies, shedding light on the long-standing Lucas Paradox as to why most cross-border capital still flows to developed countries. Additionally, most of our results are driven by target countries with “medium” levels of political risk, consistent with popular views that BITs are ineffective for countries with very high risk and not necessary for countries with low political risk.
- G3 - Corporate Finance and Governance