Acquisition Announcements Research Articles

The takeover Tango: Unraveling the impact of state-owned enterprise acquisitions on American competitors

When foreign state-owned enterprises (SOE) enter the United States (US) market by acquiring domestic targets, they increase competition in the targeted industry and pressure domestic competitors. Competitors should respond to such acquisitions by changing their behavior. Using acquisition data from 2010 to 2018, we examine the impact of acquisitions by foreign SOEs on the US competitors of acquisition targets. We analyze the initial response to acquisition announcements, the attempts of industry incumbents to increase their political connections, and the change in profitability and efficiency of such incumbents. Investors respond most negatively to SOE acquisitions when the domestic competitor is politically connected, implying such firms have the most to lose from such acquisitions. The US target firms can access resources from SOEs to offer better and cheaper products and thus increase their market share. Our analysis shows that competitors’ profitability and lobbying activity decrease while efficiency increases after SOE acquisitions. These results indicate that SOE acquisitions force domestic competitors to adapt to a changing competitive environment.

How Do Investors Respond to Targets’ Interim Earnings?

ABSTRACT Fundamental to the accounting literature is that firms’ stock prices relate positively to their earnings news. We examine a setting where investors may be unsure to which firm the announced earnings accrue: earnings announced by acquisition targets between the announcement and completion of the acquisition. We find targets’ stock prices relate positively to their unexpected earnings during this interim period but only for unsuccessful M&A deals. For completed deals, we fail to find that targets’ or acquirers’ stock prices respond to targets’ unexpected interim earnings at the time of announcement. However, we find that targets’ interim earnings predict future returns of the combined firm following deal completion. A trading strategy based on targets’ interim earnings produces economically significant annualized abnormal returns of 7.25 percent. Our findings suggest investors respond inefficiently to the earnings that targets announce between the announcement and completion of acquisitions. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M40; M41; G34.

Determinants of Cross-border Acquisition Completion: A Study of Acquisitions by Indian Firms

While cross-border acquisitions by emerging economies are increasing over time, a significant percentage of deals are withdrawn before completion. By integrating the ‘organizational learning lens perspective’ with the ‘signalling lens perspective’, this study aims to investigate deal-specific, firm-specific and country-specific factors that can increase the likelihood of deal completion. The analysis is based on 16 years of data from a prominent emerging economy: India, from 2005 to 2021. A binary logistic regression model is used to understand the determinants of deal completion. Additionally, standard event study methodology is deployed for a particular firm-specific determinant (market reaction to deal announcement) to develop a proxy for the variable. Our findings indicate that factors which enhance learning during the acquisition process and communicate strong and positive signals to build trust between the acquirer and target positively impact the completion of announced acquisitions. Specifically, we report that acquisitions using cash as the payment method and those that receive positive market reactions at the time of acquisition announcement exhibit a higher likelihood of completion. In contrast, the prior failure experience of the acquirer has a detrimental impact on the likelihood of deal completion. The empirical results have important implications for improving the success of cross-border deals from emerging nations.

‘Know when to fold 'em’: Policy uncertainty and acquisition abandonment

AbstractThis study investigates how policy uncertainty affects the acquisition process during the post‐announcement period. Utilising a sample of Australian mining project acquisitions over 1998–2017, we find that rising policy uncertainty after initial acquisition announcements is associated with delays in deal completion. In addition, prolonged high policy uncertainty plays an important role in triggering acquisition abandonment. Further, the stock market reacts less negatively to deal abandonment decisions made amid protracted policy uncertainty, and such reactions are associated with managers' explanations for terminating the deals. Overall, our findings highlight the importance of policy uncertainty as a ‘deal‐breaker’ in acquisitions.

Acquisitions and Technology Value Revision

Acquisition announcements coincide with upward value revisions for the target firms’ technology peers, which are not due to economic relations based on product market, supply chain, or geographical location. Such a phenomenon is robust across subsample periods, not specific to merger or technology waves, and not related to product-market structure and the unique innovation features of certain technology-intensive industries. Firms experience more dramatic value revisions when they have deeper technology overlaps with their targets, are more dependent on technology, or when a transaction features higher premium or greater technology overlap between the acquirer and target. Our mechanism analysis provides evidence that is primarily consistent with the acquisition-probability hypothesis whereby acquisition announcements elevate expected technology synergies and merger prospects for peers and partially in line with the enhanced-investment hypothesis that peers’ revaluations correlate with increased technology investments. We do not find any evidence in line with the competition-balance hypothesis that attributes peers’ value revisions to the change in industrial competition intensity. Overall, our results demonstrate that acquisition announcements disseminate novel information about the value of technology that is of common interest among firms with close technologies. This paper was accepted by Gustavo Manso, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4890 .

COMPARATIVE ANALYSIS OF COMPANY PERFORMANCE BEFORE AND AFTER MERGERS AND ACQUISITIONS IN COMPANY LISTED ON IDX 2018-2021

The purpose of this study is to examine how companies trading on the Indonesia Stock Exchange fared before and after M&A deals were made in the years 2018 through 2021. In this Study, we employed a comparable quantitative approach called "purposive sampling" to collect our data. There are seven suitable businesses to use as examples. Descriptive statistics, a normality test, and the Wilcoxon signed-rank test were employed to analyze the data. There was no discernible change in the financial performance of companies listed on the Indonesia Stock Exchange (IDX) before and after the announcement of mergers and acquisitions, as measured by three financial ratios: return on assets (ROA), return on equity (ROE), and debt to equity ratio (DER), for the period of 2018-2021. Several elements, according to the findings of this research, determine the ultimate fate of mergers and acquisitions. Investors should be aware that mergers and acquisitions do not always improve business efficiency.

The information value of M&A press releases

How do managers comment on merger transactions? By analyzing the initial public announcements of mergers and acquisitions (M&As) from 1995 through 2020 and extracting the linguistic sentiment from statements made by managers of target and acquirer firms, we provide new evidence on the informational value of M&A disclosures. We find that positive sentiment by the target firm results in positive returns for the target. However, when the target firm disagrees with the sentiment of the acquirer, this results in lower returns for the target. Further, when the target displays positive sentiment, this increases the likelihood of merger completion and shortens the time to completion of the deal. We decompose acquirer sentiment into manipulative and fundamental components and demonstrate that acquirer CEOs with low confidence produce M&A statements that are more manipulative. This suggests that, while sentiment in M&A disclosures contains information about fundamentals and managerial attitudes, it can be manipulated to protect the personal interests of managers.

What protects me also makes me behave: The role of directors' and officers' liability insurance on empire-building managers in China

In this paper, we examine the monitoring effect of Directors' and Officers' liability insurance (D&O insurance) on firms' acquisitions in China. We find that firms with managers covered by D&O insurance are less likely to undertake acquisitions and if they do, their acquisitions are associated with smaller bid premium of the acquired targets, higher stock returns upon acquisition announcements, and better operating performance post-acquisition. The deterrence of D&O insurance on acquisition is more pronounced when the insurance providers are more active and when managerial moral hazard is more likely to exist. Further findings suggest that D&O insurance diminishes the effect of CEO's overconfidence and risk-seeking behaviors on their acquisition decisions. Overall, our study suggests that D&O insurance can play an effective monitoring role that deters empire-building acquisitions.

ANALISIS REAKSI PASAR TERHADAP PENGUMUMAN MERGER DAN AKUISISI PADA INDUSTRI PERBANKAN DI BURSA EFEK INDONESIA

Merger and acquisition activities are corporate action activities that often occur in Indonesia, especially in the banking sector. Merger and acquisition activities abnormal return of shares and trading volume activities (TVA). In this case the merger activity and gives a signal to investors to invest. This study aims to examine the capital market against banking industry companies that carry out mergers and acquisitions on the Indonesia Stock Exchange as seen through abnormal stock returns and TVA. There are 14 companies conducting mergers and acquisitions from 2001 to 2021 on the Indonesia Stock Exchange (IDX). The method that used by this event study with non-probability sampling method, namely purposive sampling technique. The data analysis technique used was the Wilcoxon signed rank test. The results showed that there were no significant market differences before and before the announcement of mergers and acquisitions. Another thing found is the announcement of mergers and acquisitions significant differences in TVA before and before mergers and acquisitions.

Investors’ Reactions to Alliance‐Engendered Acquisition Ambiguity: Evidence from U.S. Technology Deals

AbstractWe study how, when target firms are engaged in strategic alliances, the ambiguity surrounding an acquisition's anticipated synergies influences investors’ reactions to announcements of acquisitions. Drawing on behavioural finance research and the resource redeployment literature, we predict that investors’ limited access to the information encoded in the target firms’ alliances and the uncertainty around the re‐deployability of their embedded resources generate a negative relationship between the number of target alliances and investors’ reactions. We also hypothesize that this negative effect is exacerbated when the alliances involve foreign alliance partners but is attenuated when acquirers are experienced in acquiring targets with alliances. Analysis of a large sample of US technology acquisitions supports all our hypotheses. We contribute to management research by offering a viable explanation of investors’ reactions to the announcement of major corporate events, such as acquisitions, whose structural characteristics deny investors material information about these events’ potential to create value.

In the CEO We Trust: Negative Effects of Trust Between the Board and the CEO

Abstract In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance. High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of corporate boards, high trust can be too much of a good thing.

Fractal dimension analysis of stock prices of selected resulting companies after mergers and acquisitions.

This study focuses on the short-run wealth of listed firms' shareholders. Currently, all of the resulting organizations offer competitive pricing tactics to create a superior environment for our ongoing establishment. Some time ago, it was noted that a merger occurred, although some functions and technology integration remained with the previous structure. In this paper, it has been discovered that merger and acquisition deals have an impact on the firm's value; in other words, we can view it as shareholders' wealth or unit depending on the stock price after the announcement of merger and acquisition deals in the short term. Furthermore, we focused on influencing variables on stock prices after the announcement of merger and acquisition transactions, which is measured as a percentage change in the stock prices of the listed resulting firms. Furthermore, this research is based on secondary data sources from reputable organizations. It primarily uses the NSE database and website to evaluate announcements and stock prices of the twenty-nine publicly traded companies. Markets respond to investors' emotions and market expertise. When acquirers have a strong market position, market capitalization rises in other segments. However, it is declining due to a lack of supportive finances. To determine the impact of merger and acquisition announcement deals on stock price changes, average abnormal return and cumulative average abnormal return with the capital asset pricing model (CAPM) (CAPM reaction to changes) were used to identify the acquiring company's stock price reaction. We investigated its impact on the fluctuation of share prices posted on stock exchanges using fractal interpolation functions. This is due to greater investment by acquirer businesses in target companies as well as investor expectations for specific stock market strongholds.

The Impact Of Merger and Acquisition Announcements On Trading Volume Activity and Abnormal Stock Returns In Companies Listed On The Indonesia Stock Exchange

This study aims to analyze the differences in trading volume activity and abnormal stock returns before and after the announcement of mergers and acquisitions in companies listed on the Indonesia Stock Exchange (IDX). The research population is all companies listed on the IDX that have carried out mergers and acquisitions for the 2017-2021 period and reported them to the Komisi Pengawas Persaingan Usaha (KPPU). Then, a sample of 31 companies was selected to be studied for 10 days, namely 5 days before and 5 days after the announcement of mergers and acquisitions. The data analysis technique used in this study uses SPSS for windows. The results of the study found that there were no significant differences in trading volume activity and abnormal stock returns before and after the announcement of mergers and acquisitions in companies listed on the Indonesia Stock Exchange (IDX) for the 2017-2021 period. Therefore, investors are expected to be more selective in choosing and analyzing information that occurs in the capital market.

How Does Tobin’s Q Respond to Merger and Acquisition Announcements: Evidence of Listed Indian Firms

Purpose: The aim of this study is to examine the linkage between mergers and acquisition announcements and firm’s valuation taking into consideration Tobin’s q. Theoretical framework: The Q theory of investment propounded by James Tobin (1969) is suitable for the present study. According to this theory, there is a significant correlation between a company's market value and its rate of investment. Following this, indicators of the relative potential profitability of investments are the valuations that are placed in financial markets on the securities of companies as ratios to the costs of replacing their assets, which is denoted by q. Design/methodology/approach: The current investigation examines Tobin's q distribution for 140 listed firms on the Bombay Stock Exchange from 2011 to 2022. Tobin’s q is calculated for the financial service sector of the Indian economy. Findings: The results study suggests that Stock markets react significantly to the valuation of Indian firms due to M&A announcements in the category of non-banking financial companies. More specifically, 40 companies have a high Tobin’s q ratio in the full sample of firms. According to the findings, the majority of M&A announcements had no effect on the Tobin's q of the sampling companies. This indicates that the stocks of companies operating in the financial services sector are not affected by news of mergers and acquisitions. It demonstrates that the Indian capital market responded normally to information on mergers and acquisitions. Research, Practical & Social implications: The study helps financial analysts, top-level management, and stakeholders of a company to correctly evaluate the impact of mergers and acquisitions announcements on Tobin’s q of firms as a performance measurement metric. Originality/value: The value of the study can be evaluated from the fact that it investigates the relationship between mergers and acquisitions announcements and Tobin's q as a crucial parameter for corporate valuation, which is the first of its kind for emerging economies.

Patent Trolls and the Market for Acquisitions

AbstractI study the effect of patent-infringement claims by patent trolls on acquisitions of small firms. Exploiting staggered adoption of state anti-patent troll laws, I find that the laws have two effects. First, the number of acquisitions of small firms declines after these laws are adopted. Second, the anti-troll laws increase the acquisition price for acquirers. The market reflects the increased cost of acquisition as measured by lower acquisition announcement returns. Large firms increase R&D after the adoption of state laws, replacing external innovation. Using a sample of acquisitions that are plausibly unaffected by the laws, I disentangle alternative explanations.

Bondholder governance, takeover likelihood, and division of gains

We investigate the effect of creditor rights on the probability of becoming a takeover target by constructing firm-level bond covenant indices. Our primary result is that the more restrictive covenants a firm has, the more likely it is to become the target of an acquisition. This finding is robust to the exclusion of merger-related event-risk covenants which have the opposite impact and appear to reduce takeover likelihood. Furthermore, this effect is not driven by financially distressed firms and rather contained in small, profitable, financially healthy firms with high growth opportunities and low cash holdings. We also find that a higher target covenant index leads to a significant decrease (increase) in target (acquirer) abnormal returns around acquisition announcements and tilts merger gains towards the acquirer, suggesting the presence of a ‘covenant discount’ for potential target firms. Overall, our results are consistent with covenants creating key frictions, and in turn, making firms viable targets for acquirers with possibly deep pockets.

Impact of Merger and Acquisition on the Companies Involved: A Case Study of Musk-Twitter Acquisition

There are many corporate actions as and when announced by the organisations. Out of these corporate actions, merger and acquisition announcement plays a very important role and it directly and indirectly affects the stakeholders in many ways. Companies may go for merger and acquisition for various reasons like growth, diversification and elimination of competition etc. The study focuses on highlighting the impact of merger and acquisition on the companies or parties involved. It also throws light on the impact of such corporate actions on the employees of the target company. Data used for the study is of secondary nature and have been collected from the respective websites of the companies involved in M&A and some other websites have also been used to collect the required data. Research methodology used is descriptive and case study approach has been used for the study. The study concludes that there are many structural changes in the companies involved in merger and acquisition. Some growth opportunities and challenges also are there for the acquirer after M&A and the management and employees of the target company may face some unfavourable changes.

External vs. In-House Advising Service: Evidence from the Financial Industry Acquisitions

This study analyzes the wealth impact on M&A deals when the acquirers in the financial industry utilize external versus in-house advising services. A quasi-natural observatory setting is applied to investigate the costs and benefits of retaining a financial advisor. Based on agency theory, information asymmetry and conflict of interest both exist in the setting of M&A deals when acquirers use advisory services. We first find that almost 40% of financial acquirers are more likely to use in-house advising services, the frequency of which is significantly higher than that of non-financial acquisitions previously documented. Further, we find that in certain complex deals of greater information asymmetry, the frequency of retaining advisory services in-house is even higher. This finding suggests that for financial acquirers who possess expertise in the M&A market, the concern of conflict of interests (i.e., misaligned incentives) between the acquirers and their advisors are more salient than the concern of information asymmetry. More importantly, using the two-stage regressions method controlling the endogeneity of the choice between in-house versus external advisory services, this study finds that the three-day abnormal returns around the acquisition announcements are 4.5% higher for the acquirers retaining in-house advisory services, 18.7% higher for the corresponding target, and the combined merger gains are 2.2% higher. Overall, our findings provide direct evidence of the agency cost when an external advisor is hired and document the incremental values that the financial acquirers’ in-house advisory services may create.

Impact of Mergers and Acquisitions Announcement on Stock Prices in India

Impact of Mergers and Acquisitions Announcement on Stock Prices in India

Market Reaction and Share Performance Towards the Merger and Acquisition Announcement of 2015-2019

This study aims to analyze differences in market reactions and performance before and before announcing Mergers and Acquisitions in companies listed on the Indonesia Stock Exchange (IDX) in 2015-2019 by measuring differences in Abnormal Return (AR), Trading Volume Activity (TVA), Security Return Variability (SRV), and Actual Return (R) 10 days before and 10 days after the event. The method used is quantitative. The data used are secondary data on daily closing stock prices and the number of shares held during the observation period. The test results show that there is no significant difference in Abnormal Return (AR), Trading Volume Activity (TVA), and Actual Return (R) before and before the event. However, there is a significant difference in the Security Return Variability (SRV) before and before the event. 
 Keywords: Abnormal Return; Trading Volume Activity; Security Return Variability; Actual Return; Merger and Acquisition
 
 Penelitian ini bertujuan untuk menganalisis perbedaan reaksi pasar dan kinerja saham Before dan After pengumuman merger dan akuisisi pada perusahaan terdaftar di Bursa Efek Indonesia (BEI) tahun 2015-2019 dengan mengukur perbedaan Abnormal Return (AR), Trading Volume Activity (TVA), Security Return Variability (SRV), dan Actual Return (R) 10 hari Before dan 10 hari setelah peristiwa. Metode yang digunakan adalah kuantitatif. Data yang digunakan adalah data sekunder harga saham penutupan harian dan jumlah saham yang diperdagangkan selama periode pengamatan. Hasil uji menunjukkan tidak ada perbedaan signifikan pada Abnormal Return (AR), Trading Volume Activity (TVA) dan Actual Return (R) Before dan After peristiwa. Namun terdapat perbedaan yang signifikan pada Security Return Variability (SRV) Before dan After peristiwa.
 Kata Kunci: Return Tidak Normal; Aktivitas Volume Perdagangan; Variabilitas Pengembalian Keamanan; Return Aktual; Penggabungan dan Akuisisi