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Manchester Grand Hyatt, Harbor A
American Finance Association
Mergers and Acquisitions
Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Isil Erel, Ohio State University
Build or Buy? Human Capital and Corporate Diversification
AbstractWhy do some firms enter a new sector by acquiring an existing company (“buy”), while others do so using their existing resources (“build”)? Using a novel dataset constructed by merging French employer payrolls with commercial M&A datasets, we show that firms are more likely to buy when their existing workforce does not include skills needed in the sector of entry. This relationship is more pronounced when labor market frictions make it difficult to hire key workers. Firms that enter by building realize lower entry sales when their existing workforce is not adapted to the sector of entry, especially in the presence of labor market frictions. Our results suggest that firms buy to acquire their target’s human capital when adapting their existing workforce is too costly.
Activism Pressure and the Market for Corporate Assets
AbstractWe investigate the impact of hedge fund activism on corporate transaction markets. We find that activism targets as well as firms exposed to hedge fund threats receive more merger bids, increase divestitures and make fewer acquisitions, with the acquisition effect concentrated among large firms. We document that the majority of activist campaigns are clustered by industry, and estimate that the simultaneous increase in asset sales and decrease in acquisitions in such activism clusters reduce real asset liquidity for asset sellers by about 35\%. The liquidity squeeze produces two effects: transaction prices are reduced, and industry outsiders provide liquidity by purchasing more industry assets. Looking at short-term price pressure and long-run performance, we present evidence that transactions by activist targets are less affected by the reduced asset liquidity than those of other firms.
Are Acquisitions of Intangibles Less Subject to Agency Problems?
AbstractAcross several measures, we find that acquisitions exhibit less evidence of agency problems when the acquired assets are more intangible. Acquisitions of intangible assets are associated with higher announcement returns, less free-cash flow availability, and superior post-acquisition operating performance, all of which contradict empire-building concerns. They are also associated with greater stock volatility and distress risk, contradicting quiet-life concerns. Our evidence suggests that the managerial rents that lead to value-destroying acquisitions are mainly associated with tangible assets. Intangible acquisitions best fit the “like buys like” theory, in which firms acquire targets with similar investment opportunities and complement subsequent R&D expenses with targets’ technology.
University of North Carolina-Chapel Hill
London Business School
University of British Columbia
- G3 - Corporate Finance and Governance