Foreign Bidders Research Articles

The fed information shocks and the market for corporate control: Predictive and causal effects

We show that contractionary monetary shocks, when reflecting a positive macroeconomic assessment by the Federal Reserve (hereafter “Fed”), predict an economic environment that is characterized by (a) a rise in M&A activity, (b) a higher likelihood of M&A completion, (c) higher bidder gains, (d) limited concerns about M&A overpayment, and (e) higher premia offered by foreign bidders to U.S. targets. Further, Fed information shocks have a standalone and direct causal effect on market expectations of M&A gains. That is, positive Fed information shocks trigger a positive revaluation of pending M&A. This revaluation effect, which holds after controlling for macroeconomic conditions and changes in economic forecasts, is more pronounced in deals that are relatively large, financed with stock, and have received a negative market reaction at the M&A announcement period. Overall, our results highlight the independent and credible signaling role of the Fed in the realm of M&A.

Context matters: The signaling role of foreign bidders’ reputation in cross-border acquisition contests

Existing research offers limited understanding of how foreign acquirers enhance their chance of success in cross-border acquisition (CBA) deals. Engaging and extending signaling theory, this paper argues that during the bidding stage of an acquisition deal wherein information asymmetry is heightened between the bidder and seller, reputation of foreign bidders can serve as a signal of quality, increasing their likelihood of winning a deal over domestic bidders. Importantly, this signal is only effective when there is strong nationalist sentiment in the seller's country. Analyses of 580 bidders in 275 cross-border multi-bidder acquisition contests between 1994 and 2016 support our predictions.

Government intervention in European mergers and acquisitions

The increasing globalization of economies has leveraged protectionist attitudes in different countries during the last decades.In the context of cross-border mergers and acquisitions (M&A), national governments have intervened to “protect” big domestic firms and their industries from foreign bidders. Despite the potential for severe implications of these actions on the internationalization of firms and development of markets, the research in this area is relatively scarce, and we still know very little about the real causes and consequences of government intervention. In this paper, we study government opposition to cross-border European M&A during the period 1997–2017, an era of important changes in Europe. Using an event study methodology, we examine abnormal returns for targets and their rivals in the time period prior to actual intervention to gauge if investors perceive intervened deals as harmful events for the industry, which could justify government intervention. We use a hand collected sample of 1,574 EU15 rival firms for 48 mergers, of which 18 experience government intervention. Entropy balanced regression models show that rivals of intervened targets earn significantly lower returns relative to rivals of non-intervened targets on deal announcement. Nevertheless, rivals’ abnormal returns are not negative, suggesting that intervened deals are not perceived ex ante as harmful for industry competitiveness. The results are more consistent with investors’ ability to identify likely blocked deals, which puts downward pressure on abnormal returns to both the target companies and their rivals. These findings indicate that government interventions against foreign bidders seem to have an economic cost in the sector that is anticipated by the investors.

Public procurement in construction: a critical review

Introduction. The first article of the series addresses the main findings of the analysis of regulatory documents governing public procurement in construction in some foreign countries. Methods, that are little known in Russia and not typical for the domestic practice of contractual relations, are successfully used abroad. On the contrary, some of the rules look strange to a foreign bidder. The Auditing Chamber of the Russian Federation emphasizes the instability of competition legislation.
 Materials and methods. The authors address the Russian investment and procurement statistics and study basic principles and methods of public procurement. Basic rules governing relations between customers and contractors are analyzed. The Russian bidding legislation is compared with foreign bidding legislation systems, which are analyzed in the article.
 Results. The author have found that no thorough preparations for design and construction works are made. Little financial resources are invested into feasibility studies. Electronic document management is overemphasized, and features of the construction process are not sufficiently addressed. Competitive negotiations are not used abroad, although auctions, that do not take into account any parameters other than the price, are applied. The contact price is set in advance, without taking into account the contractor’s capabilities, and later this price remains unchanged, even if its initial value is too low. In many cases no contractors join the bidding process, which causes investment programmes to fail. The procurement legislation hardly addresses the contract implementation phase.
 Conclusions. It is advisable to draft and pass an independent federal law on public procurement in construction. At the same time, it is necessary to take into account the international experience and the capabilities of contractors operating in civil and industrial engineering. There is a need to limit indirect costs and profit margins of equipment and construction material producers in the same way as it is done in respect of construction companies within the framework of price control measures.

ОРГАНІЗАЦІЙНО-ЕКОНОМІЧНІ ЧИННИКИ АКТИВІЗАЦІЇ ІННОВАЦІЙНИХ ТЕХНОЛОГІЙ В РЕАЛІЗАЦІЇ ЗАВДАНЬ РОЗВИТКУ МОСТОБУДІВНОЇ ГАЛУЗІ

The article provides statistical data of the technical condition of bridges in Ukraine, identifies the organizations responsible for the condition of bridges in Ukraine, analyzes the mechanism of design, construction, reconstruction and repair of bridges on a competitive basis in Ukraine, identifies shortcomings, proposes changes in the mechanism for the promotion of innovative technologies, taking into account international experience. The article proposes to use the selection of bidders not only by price, but taking into account the quality of works and services. This need was identified because of the analysis of the current Ukrainian legislation in the field of competitive bidding and building, renovation, and reconstruction of bridges. Identified the need to develop a program to encourage participation in tenders of companies with innovative products for the construction and reconstruction of bridges, using the Japanese experience. The article offers a bonus system of motivation for the winning bidder`s company, in case of reducing the final cost of the project. It was considered the necessity of including a bonus motivation system in the contract. This will lead to greater interest of companies to participate in competitive bidding and bring to the market innovative technologies and products for the construction, reconstruction, repair of bridges in Ukraine. It was outlined the need to develop an open statistical base in competitive bidding programs, what will make these programs more transparent for not only Ukrainian bidders, but for foreign bidders too, that can help to involve foreign innovative technologies in building and reconstruction of bridges in Ukraine. As a result of the analysis of the existing organizational and economic process of implementation of technologies for bridge construction, identified the need to develop a standard Sample of Feasibility Study for bridge construction, taking into account the final cost of the project and to include this mechanism to the contract. Identified the need of using of adaptive foreign experience of participation in bidding in Ukraine, especially in part of implementation of innovative products and services during the building or reconstruction of the bridges.

Markkinointiesite suostuttelun välineenä kansainvälisissä yrityskaupoissa

This article examines how shareholders opinions and actions are influenced in takeover bids through convincing and persuasive rhetoric. The focus of this article is on arguments and other rhetorical features used to make the takeover bid acceptable or even desirable. The material of the study consists of marketing brochures published in friendly takeover bids in which shareholders of eight companies listed on the Helsinki Stock Exchange received an offer to sell their shares. The offers were made between end of 2018 and early 2021 by a foreign bidder. This study sheds light on the highly controversial and complex phenomenon of cross-border mergers and acquisitions in Finland from a communication perspective. In this article, rhetorical features are analyzed in their context, i.e., how investor relations restrict and enable language use. The findings of the research show how positive image of M&A is constructed through argumentation, but also distinct persuasive characteristics shareholders should be aware of to make rational decisions on whether to accept or reject the offer.

Language as a barrier to entry: Foreign competition in Georgian public procurement

Provision of government contract information in English reduces the barriers to participation by foreign suppliers. We measure this effect using data from the country of Georgia, where English translations of government tenders were provided above specified contract size thresholds, which varied over time and across contract types. The provision of English documentation more than doubles foreign company participation for low value contracts, and leads to smaller, though still substantial, increases for higher value contracts. Because foreign bidder participation in Georgia is relatively small, the resulting impact on prices is in the order of only one percent.

Language as a Trade Barrier: Evidence from Georgian Public Procurement

Provision of government contract information in English reduces the barriers to participation by foreign suppliers. We measure this effect using data from the country of Georgia, where English translations of government tenders were provided above specified contract size thresholds, which varied over time and across contract types. The provision of English documentation more than doubles foreign company participation for low value contracts, and leads to smaller, though still substantial, increases for higher value contracts. Because foreign bidder participation in Georgia is relatively small, the resulting impact on prices is in the order of only one percent. However, even these small price effects are a non-trivial fraction of the profit margins of domestic competitors.

In the Eye of the Beholder: The Asymmetric Impact of National Cultural Distance on Target Premiums for US And Foreign Firms in Cross-Border M&As

Prior literature routinely assumes symmetric cultural distance (CD) in a given country pair, suggesting an identical role for the home and host countries. However, if the absolute CD is perceived differently depending on the acquirer’s home base, it may yield differential effects in cross-border M&A (CB M&A) transactions. Consistently, we find that the relationship between CD and CB M&A premiums is not uniform, but varies by acquirer origin. While we find a strong negative association between CD and premiums when U.S. firms bid for foreign targets, no such negative association is observed when foreign bidders evaluate U.S. targets. Using traveler flows, student exchanges, and previous acquisitions as proxies for directional cross-cultural familiarity, we provide evidence that familiarity with the target’s national culture is a main driver that mitigates the negative effects of CD on premiums and thus explains the observed asymmetry. Our findings highlight the existence, as well as the source, of the asymmetric property in the relationship between CD and target premiums in CB M&A.

Protection in government procurement auctions

Discrimination against foreign bidders in procurement auctions has typically been achieved by price preferences. We demonstrate that in the bidding game, each level of protection via a price preference can be achieved by an equivalent tariff. When government welfare depends only on net expenditures, this equivalence carries over to the government's decision. As such, this equivalence provides a justification that agreements to eliminate price preferences to be taken in tandem with agreements to lower tariffs; e.g., the Government Procurement Agreement (GPA) in the broader context of the WTO.

The asymmetric relationship between national cultural distance and target premiums in cross-border M&A

Prior literature routinely assumes symmetric cultural distance (CD) in a given country pair, suggesting an identical role for the home and host countries. However, if the absolute CD is perceived differently depending on the acquirer's home base, it may yield disparate effects in cross-border M&A (CB M&A) transactions. Consistently, we find that the relationship between CD and CB M&A premiums is not uniform, but varies by acquirer origin. While we find a strong negative association between CD and premiums when U.S. firms bid for foreign targets, no such negative association is observed when foreign bidders evaluate U.S. targets. Using traveler flows, student exchanges, and previous acquisitions as proxies for directional cross-cultural familiarity, we provide evidence that familiarity with the target's national culture is related to the magnitude of CD discount in a systematic way and thus explains the observed asymmetry. Our findings highlight the existence, as well as the source, of the asymmetric property in the relationship between CD and target premiums in CB M&A.

Are cross-border acquisitions enemy of labor? An examination of employment and productivity effects

We examine the employment, efficiency and productivity effects of cross-border acquisitions using a large sample of firms. After accounting for industry-wide influences, we observe that targets of cross-border acquisitions were less productive than those of domestic acquisitions before the takeover, but after the acquisition, their productivity levels improve significantly and they increase wages (more than domestic targets), albeit they reduce employment levels. In addition, cross-border targets become more efficient than their counterparts acquired by domestic bidders. Interestingly, while in general acquisitions in the resource sector and related acquisitions do not generate any labor efficiency gains, if the acquisitions are undertaken by foreign bidders then the targets realize significant efficiency improvements. At the macro-level over the long run, cross-border acquisitions are associated with improvements in aggregate labor conditions (i.e., higher wages, lower levels of unemployment, and higher labor productivity). At the same time, firms targeted in cross-border acquisitions have greater impact on GDP than those targeted in domestic acquisitions. This suggests that cross-border takeovers spur a reallocation of labor which generates positive outcomes for the host country. This significant contribution is often overlooked in the discourse on the benefits of cross-border acquisitions to the host country.

The role of governments in hostile takeovers – Evidence from regulation, anti-takeover provisions and government interventions

This paper addresses the role of governments in hostile takeovers by analysing 263 hostile takeover bids in Europe and North America during 2000–2014. Our results suggest that governments may influence the openness of the domestic hostile takeover market through takeover regulation, potentially implementing protectionism. The corresponding features of the regulatory regime may in turn stimulate the deployment of anti-takeover provisions by entrenched target managers. Rather than increasing takeover premiums, anti-takeover provisions are associated with lower success rates of hostile bids, and may thus harm corporate governance. Governments’ direct intervention in hostile takeovers is more likely in case of a foreign bidder, large transactions, high unemployment and high GDP growth rates, pointing to both protectionist and populist motives. The hostile bid failed in all cases of government intervention identified in our sample. Direct government intervention may thus serve as ultimo ratio in order to block unwanted transactions.

The Role of Sovereign Ratings in M&A Markets: Empirical Evidence from Latin America and South East Asia

Sovereign ratings have not only been regarded as an indicator of country risk for foreign investors, but also as a determining factor for capital market conditions of domestic firms. Although they have attracted growing interest in academic research, the extant literature has so far rendered only minor attention to their role in corporate strategic investment decisions. This paper focuses on the influence of sovereign ratings on domestic and cross‐border M&A decisions in a sample of Latin American and South East Asian countries. The empirical results lend support to the proposition that sovereign ratings condition the level of activity in domestic M&A markets as well as the attractiveness of domestic M&A targets for foreign acquirers. Moreover, the foreign bidders’ choice of ownership stakes in acquisitions appears to be affected. The paper thus highlights the relevance of sovereign ratings as a country‐level factor to be considered in studies of corporate investment behavior.

Domestic Taxes and Inbound Acquisitions

US corporations face higher tax burdens than those in many other countries, potentially influencing merger and acquisition activity. A theoretical model of this process yields two testable implications: that, relative to high-tax domestic bidders, low-tax foreign bidders will specialize in both high profitability target firms and those with few tax deductions. I find support for both effects in the US acquisition market using cross-sectional variation in target profitability and industry-level variation in deductions from bonus depreciation tax reform. Counterfactual simulations show that this reform induced a large drop in foreign acquisitions and a significant loss of aggregate wealth.

Bidder country characteristics and informed trading in U.S. targets

Information leakages experienced by U.S. targets in the pre-bid period are especially pronounced when they involve foreign bidders whose countries have weak insider trading sanctions, are perceived to have prevalent insider trading activity, have a low level of local merger activity, and are not classified as common law countries. Among foreign countries, information leakages are less pronounced when the bidder's government has a cooperative agreement with the SEC. Enforcement cooperation agreements signed between the SEC and foreign regulators serve as an effective means of enforcing the stricter U.S. insider trading laws on a more global scale.

Characteristics of takeover targets that trigger insider trading investigations

We assess trading and non-trading characteristics of takeovers that trigger Securities and Exchange Commission (SEC) investigations of illegal insider trading. We find that targets with more pronounced abnormal stock price run-ups (especially in long pre-bid windows) and abnormal trading volume (especially in short pre-bid windows) trigger an SEC investigation. We also find that an SEC investigation is more likely when the takeover is characterized by a foreign bidder, a public bidder and a relatively large target. Thus, non-trading characteristics complement the trading characteristics in explaining what triggers an SEC investigation of insider trading.

Police Powers for Sale: Red-Light Enforcement Sold to the Foreign Bidder

Red-light cameras have been popping up all over major intersections and headlining news stories nationwide. Undoubtedly, public outcry over this relatively innovative technology may be rooted in the conspiracy theorist’s Orwellian “Big Brother” notion that the government monitors the citizen and invades his personal freedoms; however, on a less-exaggerated notion, public outcry may be driven by the deep-seated belief that this new technology is inherently wrong. Many violators who received citations have challenged the constitutionality of the whole red-light-camera program, but few, if any, have had any luck in the courtroom.1 Judges hearing appeals of violations have frequently disregarded statutory parameters and simply dismissed any disputed violations.2 Since the introduction of automated

Foreign takeovers of Australian listed entities

This study examines if Australian target firm abnormal returns and characteristics differ between Australian and foreign bidders. The results indicate that takeovers from foreign bidders are associated with higher target firm abnormal returns than bids from Australian firms. Overseas bidders also pay an additional premium for research-intensive target firms. Target firms that receive an offer from outside Australia are significantly larger, have lower leverage, and are more likely to operate in the resources sector. Foreign acquisitions are also more likely to be a friendly takeover. The relative exchange rate is not associated with the likelihood of a foreign takeover. There is no difference in takeover success or competition between domestic and foreign bids.

Corporate Governance Reforms and Firm-Level Allocation of International Capital Flows

This paper investigates how changes in investor protection (IP) of capital exporting and importing countries affect the firm-level allocation of international capital flows. A simple model illustrates that when a capital exporting country has stronger IP than the importing country, in cross-border acquisitions foreign bidders tend to target better-performing firms. This cherry picking tendency becomes stronger (weaker) when the gap in IP increases (decreases). Data on acquisition bids from 17 strong-IP countries for firms located in 18 weak-IP countries reveal that the cherry picking tendency declines after target countries undertake corporate governance reforms (CGRs), which narrow the gap in IP between the acquirer and target countries. In contrast, foreign acquirers respond to CGRs enacted by their own countries by increasing their cherry picking tendencies. These results imply that the gap in the strength of IP between acquirer and target countries prevent underperforming firms in weak-IP countries from gaining access to foreign capital.