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Mergers and Acquisitions

Paper Session

Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)

Hosted By: American Finance Association
  • Chair: Isil Erel, Ohio State University

Due Diligence

Brendan Daley
,
Johns Hopkins University
Thomas Geelen
,
Copenhagen Business School
Brett Green
,
Washington University in St. Louis

Abstract

Due diligence is common practice prior to the execution of corporate or real estate transactions. We propose a model of the due diligence process and analyze its effect on prices, payoffs, the likelihood of deal completion, and the distribution of completion times. In our model, if the seller accepts an offer, the acquirer has the right to gather information and chooses when to execute the transaction. Our main result is that the acquirer engages in “too much” due diligence relative to the social optimum. Neverthe- less, allowing for due diligence can improve both total surplus and the seller’s payoff compared to a setting with no due diligence. The optimal contract involves both a price contingent on execution and a non-contingent transfer, resembling features such as earnest money or break-up fees that are commonly observed in practice.

Misconduct Synergies

Heather Tookes
,
Yale University
Emmanuel Yimfor
,
University of Michigan

Abstract

Can M&A improve employee misconduct? We use the investment advisory industry as a laboratory to test whether there are misconduct synergies in M&A. Consistent with synergies, we find that employee misconduct drops by 23 percent following merger events. However, contrary to the idea that better-performing firms tend to purchase poor-performing ones, we find that both targets and acquirers have better misconduct records than the industry’s average firm. Moreover, we find evidence of assortative matching on misconduct. This suggests complementarities in misconduct (consistent with Rhodes-Kropf and Robinson (2008)). Indeed, target firm employees have better misconduct records on average, but the sensitivity of employment sep-aration to misconduct also increases post-merger, suggesting improved disciplinary mechanisms.

Corporate Restructuring and the Mental Health of Employees

Laurent Bach
,
ESSEC Business School
Ramin Baghai
,
Stockholm School of Economics
Marieke Bos
,
Stockholm School of Economics
Rui Silva
,
Nova School of Business and Economics

Abstract

We study the evolution of workers' mental health around corporate restructurings caused by takeovers. Using employer-employee level data linked to individual health records, we document that the incidence of stress, anxiety, depression, psychiatric medication usage, and even suicide increase following acquisitions. These effects are more pronounced for women, "blue-collar" workers, employees with lower innate abilities (IQ and non-cognitive), employees who leave the merging firms in the year of the transaction, and employees in financially distressed target firms. We show that the negative impact on the mental health of the average employee is of similar magnitude as the positive effect of marriage, but smaller than the effect of other marked events in workers' lives, such as divorce and protracted unemployment.

Private Equity in the Hospital Industry

Janet Gao
,
Indiana University
Yongseok Kim
,
Indiana University
Merih Sevilir
,
Indiana University

Abstract

This paper studies the growing presence of private equity (PE) firms as acquirers in the hospital industry. We examine employment, operational efficiency and patient satisfaction outcomes at hospitals acquired by PE firms. While there are significant employment cuts at target hospitals, the proportion of physicians and nurses in the total workforce of the hospital increases when the acquirer is a publicly traded PE backed hospital. Consistent with reduction in overall employment, target hospitals exhibit a significant reduction in their total wage bill and in operating costs per treated patient. Reduction in employment, total wages and operating costs are also observed in target hospitals acquired by non PE acquirers, although non PE acquirers are not associated with an increase in the proportion of skilled employees. In line with the observation that PE firms increase the proportion of skilled employees, patient satisfaction outcomes do not worsen (or improve along some dimensions) at hospitals acquired by publicly traded PE backed hospitals whereas they significantly worsen at hospitals acquired by non PE acquirers. Overall, our paper provides a comprehensive look at the role of PE acquirers in the hospital industry, and documents nuanced differences between PE and non PE acquirers, as well as between PE backed acquirers with and without access to public capital markets.
Discussant(s)
Victor Lyonnet
,
Ohio State University
Shan Ge
,
New York University
Elena Simintzi
,
University of North Carolina-Chapel Hill
Katharina Lewellen
,
Dartmouth College
JEL Classifications
  • G1 - Asset Markets and Pricing