Corporate Takeovers Research Articles

How does product market competition affect corporate takeover in an emerging economy?

This study investigates the effect of product market competition as an external control mechanism on the operation and efficiency of corporate takeovers in an emerging economy. Empirically, we find that firms in more competitive product markets are more likely to experience a change in control than those in less competitive markets after controlling for other firm and industry characteristics. Further, the positive effect of a change in control on shareholder wealth is observed in more competitive product markets but disappears in less competitive markets. The results imply that product market competition improves market efficiency for corporate control in an emerging economy with less developed capital markets and weak investor protection, supporting the complementary Hypothesis between product market competition and corporate takeover.

International Mergers and Acquisitions Laws, the Market for Corporate Control, and Accounting Conservatism

ABSTRACTExploiting the staggered enactment of country‐level mergers and acquisitions (M&A) law as an exogenous increase in corporate takeover threat, this paper examines how a disciplinary market for corporate control affects accounting conservatism. Following M&A law adoption, we find increased accounting conservatism, with more pronounced effects in countries with weak shareholder protection and in those experiencing larger growth in takeover activity. Further analysis reveals that elevated takeover threats increase conservatism through changes in capital structure and investment decisions as well as improvements in board monitoring. Our findings highlight the importance of the market for corporate control in shaping financial‐reporting outcome.

Liquidity and information asymmetry considerations in corporate takeovers

ABSTRACTWe examine how stock market liquidity and information asymmetry considerations influence the wealth effects of Mergers and Acquisitions (M&As). We present a simple model predicting that M&As of listed targets that have relatively illiquid stocks are profitable for acquirers due to (a) the weak bargaining power of the targets’ shareholders, and (b) the limited information asymmetry concerns when evaluating takeover synergies. Our results show that cash-financed M&As of listed targets that have relatively illiquid stocks are associated with an increase in acquirer risk-adjusted returns. These gains are equivalent to those realized from comparable private target M&As. When engaging in stock-financed listed-target M&As, acquirers with liquid stocks enjoy significant gains when the targets have relatively illiquid stocks. This result holds especially when the deal is announced during periods of deterioration in the overall stock market liquidity. Lastly, we find that liquidity considerations affect the acquirer’s choice of the target firm’s listing status, as well as the M&A method of payment.

International Mergers and Acquisitions Laws, the Market for Corporate Control and Accounting Conservatism

Exploiting the staggered enactment of country-level mergers and acquisitions (M&A) law as an exogenous increase in corporate takeover threat, this paper examines how a disciplinary market for corporate control affects accounting conservatism. Following M&A law adoption, we find increased accounting conservatism, with more pronounced effects in countries with weak shareholder protection and in those experiencing larger growth in takeover activity. Further analysis reveals that elevated takeover threats increase conservatism through changes in capital structure and investment decisions as well as improvements in board monitoring. Our findings highlight the importance of the market for corporate control in shaping financial-reporting outcome.

Freeze-Out Mergers

Abstract Do freeze-out mergers mitigate the free-rider problem of corporate takeovers? We study this question in a tender offer model with finitely many shareholders. Under a freeze-out merger, minority shareholders expect to receive the original offer price whether or not they tender their shares. We show that the ability to freeze out shareholders increases the raider’s expected profit. However, as the number of shareholders gets arbitrarily large, the raider’s expected profit in equilibrium converges to zero for any freeze-out clause with an ownership threshold that is strictly above simple majority. In this sense, freeze-out mergers do not solve the free-rider problem. Received September 17, 2016; editorial decision June 3, 2018 by Editor Francesca Cornelli.

An uncomfortable truth: Canada’s wary ambivalence to Chinese corporate takeovers

This article examines the behavioural patterns of successive Canadian governments in responding to three takeover attempts of iconic high-value Canadian corporates by large state companies from China. The first is China Minmetals Corporation’s attempt to acquire Noranda in 2004–2005 during the Liberal government of Paul Martin, the second is China National Offshore Oil Corporation’s acquisition of Nexen in 2012 during the Conservative government of Stephen Harper, and the third is China Communications Construction Corporation International’s bid for Aecon Group in 2017–2018. This analysis highlights some important similarities in the behavioural response of the Canadian governments across the three cases: ambivalence and wariness. Policy lessons are addressed in the conclusion.

Culture as Contradiction in Urban Regeneration: Sanitization, Commodification and Critical Resistance in Liverpool One

This essay uses critiques of the homogenization of urban regeneration practices over recent decades to examine Liverpool ONE (L1), a privately owned, open-air retail develoment in the center of the historic city. The argument considers the role of a particular concept of culture in enabling major projects, which frequently involve the conversion of public resources into private assets, to be projected in a benign light. Countering this trend is a core mission for New York-based activist artist, Reverend Billy and his Church of Stop Shopping Choir; an inspiration to young artists in Liverpool. Since opening, L1 has functioned as a focal point for critical cultural interventions, whereby artists draw attention to the enclosure of urban democracy that results from the corporate takeover of established commercial streets. This essay examines two interventionist projects which deployed the potential of performance to critique Liverpool ONE: Duke Aid, executed by undergraduate performing arts students from Liverpool Hope University (2009), and Ghost Town (Liverpool Gothic Festival, 2013), written and performed by Alice Colquhoun and Izzy Major.

Corporate Takeovers and Labor Restructuring

Using detailed employer-employee administrative data linked with manually-collected information on merger activity in Brazil, I create input-based measures of technological and organizational changes to examine the relation between firms' human capital composition and mergers. I find that firms with larger shares of high-skilled and innovation-intensive employees participate in mergers. Occupational proximity is an important driver of the transaction incidence. Examining post-merger human capital compositional shifts in target firms, I provide evidence on efficiency-seeking restructuring through technology adoption, investment in innovation and cost synergies. I find support for knowledge transfers, management changes and scale economies as potential mechanisms behind these shifts.

Attention, Time, Randomness: Garbage Can Processes in Corporate Acquisitions

While prior explanations of acquisition activity usually assumed outcome-centered and corporate-centered perspectives, we study the emergence of acquisitive growth patterns as a multi-level and multi-staged process. Drawing on the ideas of the garbage can model, we seek to shed light on the impact of process characteristics in the choice and performance of strategic opportunities. We build on a unique data-set consisting of the archive of the M&A department of a large frequently acquiring firm, covering 675 reviewed targets, that resulted in 48 completed corporate takeovers. We find that intensity in opportunity search is heterogeneous across units and driven by divisional momentum. Yet, target selection is significantly affected by the temporal co-occurrence of acquisition opportunities in the corporate level. The decision making process is slowed down by attention scarcity at the corporate level and the regional level. Particularly long pre-deal processes, however, have a negative impact on subsequent performance of realized deals. Collectively, we identify an interdependent pathogenesis of non-optimal corporate choice patterns, that accumulates across subsequent stages of the decision-making process. Our analysis highlights the role of randomness in strategy formation and shows how process characteristics can have remnant effects on acquisition performance. We contribute to the acquisition literature and to the puzzle of behavioral aggregation.

Kraft's acquisition of Cadbury

The case of Kraft Foods attempting to, and eventually succeeding in, acquiring Cadbury, the UK chocolate maker, is replete with the drama and complexity of corporate takeovers. Governments, politicians, unions, customers, and other interest groups all chime in with their version of what is good for their particular interest group. The clash of food giants makes for excellent reading, and trying to determine how successful the combined company will be is a natural question to consider. The strengths of the case lie in the way the context is established, with the history of Cadbury, its culture, and the “soft” power achieved by the founding family explained.

Corporate governance roles of information quality and corporate takeovers

We examine the corporate governance roles of information quality and the takeover market with asymmetric information regarding the value of the target firm. Increasing information quality improves the takeover efficiency however, a highly efficient takeover market also discourages the manager from exerting effort. We find that perfect information quality is not optimal for either current shareholders’ expected payoff maximization or expected firm value maximization. Furthermore, current shareholders prefer a lower level of information quality than the level that maximizes expected firm value, because of a misalignment between current shareholders’ value and total firm value. We also analyze the impact of antitakeover laws, and find that the passage of antitakeover laws may induce current shareholders to choose a higher level of information quality and thus increase expected firm value.

Limits to Short Arbitrage With Takeover Risk

We hypothesize that corporate takeover markets create significant constraints for short sellers. Both short sellers and corporate bidders often target firms with declining economic prospects. Yet, a target firm’s stock price generally increases upon a takeover announcement, resulting in losses for short sellers. Therefore, short sellers should require higher rates of return when takeover likelihood is higher. Consistent with this prediction, the return predictability of monthly short interest increases with industry-level takeover probability and decreases as takeover defenses are implemented. Our results suggest that efficient takeover markets create trading frictions for short sellers and can therefore inhibit overall market efficiency.

Freeze-Out Mergers

Do freeze-out mergers mitigate the free rider problem of corporate takeovers? We study this question in a tender offer model with finitely many shareholders. Under a freeze-out merger, shareholders expect to receive the original offer price whether or not they tender their shares. We show that the ability to freeze out minority shareholders increases the raider's expected profit, and this profit is higher when the ownership requirement the acquirer has to meet in order to complete a freeze-out merger is lower. Furthermore, the raider's expected profit decreases as the firm becomes more widely held. However, in the limit, for any ownership requirement that is more stringent than simple majority, the raider's expected profit converges to zero. In this sense, freeze-out mergers do not provide a solution to the free rider problem.

Education, Culture, and Society: Selected Works of Henry A. Giroux

The article provides a thirty-year overview of the work of Henry A. Giroux, with a focus on American education, culture and youth. Giroux, a founding theorist of critical pedagogy in the United States, is committed to the belief that a return to civic participation is the sole means of curing what ails the current state of American democracy. In the selected works, Giroux addresses the corporate takeover of schools; the demonization of America's youth; the effects of the violence in the media; and the objectification of women by Hollywood. Rooted in the principles of social justice, fairness, and equality, Giroux embodies the Enlightenment's belief in improvement. The article emphasizes why Giroux is important reading for anyone concerned with the future of democracy in the United States and elsewhere.

The Ongoing U.S. Health Care Crisis: A Data Update.

While efforts to repeal the Affordable Care Act were narrowly defeated, grave problems in health care persist. Twenty-eight million remain uninsured, a number that is likely to increase. Millions more who have coverage cannot afford care because of high cost-sharing requirements. Meanwhile, the corporate takeover of medical care in the United States is at a gallop. This article provides a brief précis of recent data on U.S. health policy.

A Controversial Case of Ajay Singh – Spice Jet takeover

India's Security Market regulator.i.e., Securities Exchange Board of India (SEBI) thinks that the most important regulation of the Indian Securities Market that is the Take Over Code has been through a tough time and has been tested quite a few times due to numerous corporate takeover clashes and struggles in India. Securities Exchange Board of India (SEBI) having the main aim and purpose of protecting the rights of shareholders being affected due to the corporate takeovers is very strict regarding the application of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. However, the proper application of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 has been very ambiguous and the interpretation of the same depends upon case to case coming before the Board's ambit. Many loopholes have been found and are continuously under the scrutiny of SEBI. Reacting to the evolving times, Securities Exchange Board of India (SEBI) has actively taken part in making fundamental changes and amending Takeover Code from time to time to be at par with the changing society and international standards of takeover and merger regimes. SEBI has also provided us with many clarifications on the provisions of the Takeover Code. But one such instance where SEBI went easy on the party was during the takeover of the low-cost airline Spice jet. The takeover in 2015 was very unique because of two major reasons. They are: • It noticed the comeback of Mr. Ajay Singh, the co-founder of the carrier airline who had left the business a few years ago. • And it was also one of the first instances where the purchase price of the takeover was not mentioned and no mandatory open offer was made to the existing shareholders of the airline company. Besides all the controversy in place, SEBI decided that the entire takeover procedure was legitimate and the exemption for not making a mandatory open offer to the existing shareholders of the company was correct in place and was in accordance with the Regulations in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. This paper will be giving the necessary details about the background of the deal, will analyse dynamics of the transaction and will also discuss about the controversy involved with this deal and what the Authorities decided.

Governance of Corporate Takeovers: Time for Say-on-Takeovers?

We study the potential for digital, online information and electronic voting to improve shareholder surplus by facilitating a new governance structure, owner-governance, which shifts control of the takeover decision from the board to shareholders. We com

A Comparison of the Law Relating to Schemes of Arrangement and Takeover Offers in New Zealand

This paper explores the increasing popularity of schemes of arrangement under the Companies Act 1993 as an alternative mechanism to effect corporate takeovers by comparing schemes with traditional takeover offers under the Takeovers Code. Parts I and II of this paper introduce and provide background on the rationale for the regulation of takeovers. Parts III and IV explain the law relating to takeover offers and schemes, including an explanation of the process for effecting a takeover under both mechanisms. Part V of this paper considers whether shareholders are adequately protected when a takeover occurs by way of a scheme in comparison to the Code’s paradigm of shareholder protection. Part V submits that shareholders are sufficiently protected as the result of several additional protections that form part the scheme process. Part VI of this paper discusses the advantages and disadvantages of a scheme when compared to a takeover offer to understand why a bidder may choose to structure a takeover as one over the other. As a result of this comparison, this paper submits that while there are arguable advantages and disadvantages to both mechanisms, on balance, both can produce a successful outcome for a bidder. Finally, this paper explores the potential to reform the Companies Act to make the scheme process more efficient.

The U.S. Health Care Crisis Continues: A Data Snapshot.

Despite implementation of the Affordable Care Act in 2014, the U.S. health care crisis continues. While coverage has been expanded, 28 million people remain uninsured, and tens of millions who have coverage are unable to afford care because of high cost-sharing requirements. Moreover, many with coverage have a sharply restricted choice of physicians and hospitals, and the corporate takeover of medical care in the United States is proceeding rapidly. This article provides a brief précis of recent data on U.S. health policy.

Effects of seller’s information disclosure in equity auctions requiring post-auction investment

We consider a moral hazard issue inherent in the equity auctions of assets such as oil and gas leases and corporate takeovers. After the auction, the winning bidder decides whether to make follow-up investments in the acquired asset and makes the equity payment out of the revenue from it according to the auction outcome. Before the auction, the seller holds private information about the possible returns on that investment and must decide whether to disclose it. Larger equity payments undermine incentives to invest, reducing the impact of information revealed by the seller on expected values of the asset to a winning bidder. Thus, information disclosure makes bids less aggressive in expectation. Expected seller revenues may be higher when she does not disclose her private information than when she commits to publicly announcing it regardless of whether it is good or bad.