Mergers & Acquisitions I
Friday, Jan. 5, 2018 2:30 PM - 4:30 PM
- Chair: Pavel Savor, Temple University
Political Uncertainty and Firm Investment: Project-level Evidence From M&A Activity
AbstractWe estimate the real effect of political uncertainty on firm investment decisions by examining how U.S. gubernatorial elections affect state-level merger and acquisition activity. The number of acquisitions made by firms headquartered in states with elections decreases by 9% in the second half of an election year. The number of deals targeting firms in election states decreases by 9.6%. Political uncertainty's importance depends on acquirer and deal characteristics, with a larger impact on small deals, financially-constrained firms, and firms with lower cash flows and cash holdings. Finally, serial acquirers shift acquisition timing to avoid political uncertainty.
Social Connections and Information Leakage: Evidence From Target Stock Price Run-ups in Takeovers
AbstractWe propose that information leakage in a target’s social networks contributes to the increase in its stock price prior to a merger announcement (hereafter, target run-up). Our findings show that a target with better social connections indeed experiences a higher pre-announcement target run-up. However, the social-connection effect does not exist during the merger announcement, after the announcement, or in windows two months prior to the announcement. We further find that the social-connection effect is more pronounced among targets with more severe asymmetric information or weaker corporate governance. It is weaker when public information about an upcoming merger is available prior to the merger announcement, such as when the bidder accumulates more than five percent of the target’s share or when there are news reports on the merger prior to the announcement. The target social-connection effect is also weaker in tender offers, probably because targets are unaware of upcoming tender offers prior to their announcements. Overall, our results show that private information on an upcoming merger can be leaked and transmitted via a target’s social networks prior to its announcement, thereby causing target stock price run-up.
Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions
AbstractWe show that M&A deals that are announced when the bidder's relative value (ratio of bidder's equity value to target's equity value) is closer to its 52-week high feature higher offer premium, lower (higher) announcement returns for the bidding (target) firm, and are more likely to fail, all else equal. Yet, bidders in such deals also experience large abnormal returns in the two-year period surrounding the announcement. Our results suggest that bidders strategically choose announcement timing to exploit relative misvaluation, and cast doubt on the idea that announcement returns represent the gains to long-term shareholders of bidding firms.
- G3 - Corporate Finance and Governance