Merged Research Articles

Does carbon risk matter for corporate acquisition decisions?

In this study, we examine whether carbon risk matters in acquisitions. Using a firm's carbon emissions to proxy for carbon risk, we examine whether an acquirer's level of carbon emissions is related to the decision to engage in acquisitions and achieve subsequent acquisition returns. The results show that firms with higher emissions have an increased likelihood of acquiring foreign targets while, at the same time, having a decreased likelihood of acquiring domestic targets. Acquirers with large carbon footprints seek out targets in foreign countries that have low gross domestic product (GDP) or weak environmental, regulatory, or governance standards. We also examine the relationship between carbon emissions and announcement returns. We find that cross-border acquisition announcement returns are higher when acquirers with high carbon emissions acquire targets in countries with fewer regulations or weaker environmental standards. Focusing on the interplay of corporate social responsibility (CSR) and carbon emissions, we find that investors censure acquirers that promote CSR while also having high carbon emissions, thus resulting in worse abnormal returns. This is particularly the case if the target country is wealthy or has stronger country governance or strong environmental protection. Our findings add insight on the channels through which a focus on reducing carbon risk can add value for shareholders.

Information System Purchase and Integration Contingencies When Companies Merge

This study grounds empirically the purchasing and further integration of an implemented information system set in the frenzied context of a corporate merger. A single longitudinal case study from the Norwegian pelagic seafood industry provides a detailed long-term account of developing the information system prior to, during and after a merger in the seafood industry that relies on wild catch. It is characterised by high dependence on features of nature and society to secure sustainable production. Contingency theory together with a process view of production reveals how interactions unfold over time to develop the new unified information system. Features of integration, interaction and interdependency represent different facets of information system purchase and development. The merger process represents an abnormality for the organisation as a continuous entity. Information system development in the case, therefore, takes place in a weakly integrated network of merging firms with severe time constraints. Given high uncertainty, solutions emerge through interaction. Deterministic optimisation is, in this context, a fluffy managerial dream. Normally, information system purchase and information system development involve reciprocal interdependencies involving mutual adjustments through intensive technologies and tight interaction among all parties involved. The coercive behaviour of management seeking efficiencies overrules these planning ideals. This indicates that purchasing, in a corporate merger context, is complex and approached as a complex system in a network. Solutions used in this approach originate because of emergent-networked interaction.

Interpretation of Corporate Acquisition Contracts in Japan: A Legal Transplant through Contract Drafting

AbstractThis article explores Japanese transactional lawyers’ attempts to transplant American legal practice concerning corporate acquisition contracts into Japan. Despite their extensive efforts to disseminate legal concepts originating from the common law into the Japanese legal community, their transplantation attempts produced somewhat unexpected results by the promoters of the transplant. Faced with unfamiliar drafting styles and legal concepts, Japanese courts interpreted American-style corporate acquisition contracts in accordance with traditional Japanese-style contract interpretation. As a result, attempts by Japanese practitioners at transplantation were incomplete. This incompleteness is attributable to their inattention to the differences in approaches to contract interpretation between Japanese and New York courts. New York's approach is much more formalistic and literal than Japan's. If fully aware, however, they could have filled the gap by using functional substitutes for American techniques of controlling adjudicators’ contract interpretation which would effectively operate under Japanese law. Japan's experience confirms that a widely supported view in comparative law scholarship that transplanted law does not necessarily operate in the recipient jurisdiction as it did in its host jurisdiction is applicable to the transplantation of contract drafting practices.

Systems and Software Interface Survey

ABSTRACTINCOSE formed the Systems and Software Interface Working Group (SaSIWG) in 2017, responding to the Corporate Advisory Board interest in software and problems identified in the systems and software interface (physical, logical, data, and human). This third SaSIWG paper presents a systems engineers, software engineers, and project managers survey discussing best practices and the priority challenges related to the interface between systems and software. We group and summarize the best practices mentioned by the 31 interviewees then address priority challenges and problems. Systems engineering done well includes an ever‐increasing amount of Model‐Based Systems Engineering. It also includes developing and holding to a vision, managing data, ensuring inter‐disciplinary work, planning systematic verification, and ensuring modularity. Systems engineering must evolve to meet new challenges and, most importantly, systems engineer expertise must include software engineering.

The role of procedural rationality in debiasing acquisition decisions of overconfident CEOs

AbstractResearch SummaryIn corporate acquisitions, overconfident chief executive officers (CEOs) often make biased decisions, subsequently paying unjustifiably high acquisition premiums. We investigate the predeal process in which the acquisition premium is decided upon and, drawing from procedural rationality theory, argue that the pursuit of greater procedural rationality through slow‐paced predeal processes reduces the tendency of overconfident CEOs to inflate acquisition premiums. The empirical results based on a sample of acquisitions involving publicly held US firms show that overconfident CEOs tend to pay high acquisition premiums, replicating earlier findings of such a relationship. More importantly, the results show that the tendency of overconfident CEOs to overpay for acquisitions decreases under conditions in which the predeal processes are slower in pace.Managerial SummaryCEOs often exhibit excessively high levels of confidence in their ability to make successful corporate acquisitions. Driven by the belief in their ability, overconfident CEOs often end up overpaying for acquisitions. Our study provides suggestive evidence that setting a slow acquisition process pace is an important prerequisite for an acquiring firm and its board of directors to attenuate the inflating effect of CEO overconfidence on acquisition premiums. Our arguments and results imply that boards of directors should slow the pace of predeal acquisition processes if their CEO is exhibiting signs of overconfidence.

Creditor Control of Corporate Acquisitions

Abstract We examine the impact of creditor control rights on corporate acquisitions. Nearly 75$\%$ of loan agreements include restrictions that limit borrower acquisition decisions throughout the life of the contract. Following a financial covenant violation, creditors use their bargaining power to tighten these restrictions and limit acquisition activity, particularly deals expected to earn negative announcement returns. Firms that do announce an acquisition after violating a financial covenant earn 1.8$\%$ higher stock returns, on average, and do not pursue less risky deals. We conclude that creditors use contractual rights and the renegotiation process to limit value-destroying acquisitions driven by managerial agency problems.

Knowledge exchanges, trust, and secretive geographies in merger and acquisition processes

Our current understanding of knowledge generation over geographical distance relies heavily on studies that focus on producer–user or headquarter–subsidiary settings. Less attention has been paid to the geographical particularities of knowledge exchanges in mergers and acquisitions, which involve high costs and an extraordinary degree of risk and uncertainty with potentially significant (positive or negative) consequences for the respective firms and regions alike. To keep the risks associated with such complex long-distance transactions at bay, buying firms strongly depend on robust knowledge about the structure and value of the target units while the sellers require reliable knowledge about the goals of the acquisition and the price the buyer is willing to pay. This paper aims to investigate the spatiality of related knowledge exchanges during merger and acquisition procedures by analyzing the role of face-to-face contacts and investigating the mechanisms to establish trust in undertaking such risky endeavors. Our empirical analysis focuses on national and international corporate acquisitions and takeovers involving firms located in Germany. It is based on semi-structured in-depth interviews with actors involved in mergers and acquisitions, conducted since 2012. We distinguish between the two extremes of relational and auction-based merger and acquisition procedures and systematically analyze in a process perspective (a) the conditions under which knowledge is exchanged over distance, (b) the importance of temporary proximity and how secretive geographies of meetings evolve, and (c) the ways in which trust is created and uncertainties are reduced.

CAN RAINMAKERS JUSTIFY THEIR PAY? THE ROLE OF INVESTMENT BANKS IN REIT M&AS

This study explicitly rejects the prima facie proposition that the top-tier investment banks are capable of delivering supernormal value creation to the shareholders of a REIT acquirer in a corporate acquisition. Using the event study method, we find that REIT acquirers advised by market-leading investment banks suffer an average cumulative abnormal return of −4.41% following the M&A announcement, whereas REIT acquirers advised by non-top-tier investment banks only suffer an average cumulative abnormal return of −1.49%. The evidence shows that the contemporary practice of employing investment banks based on the prestige of the advisory firms could potentially result in value-destroying M&As for the REIT acquirers.

Corporate governance “bundles” and firm acquisitiveness

AbstractResearch Question/IssueWe explore how the interrelations of governance mechanisms (“bundles”) influence a firm's propensity for corporate acquisitions. Focusing on four key internal and external mechanisms, namely, board of directors monitoring, CEO pay incentives, takeover market discipline, and institutional investor monitoring, we use a sample of 1171 completed M&A deals by 799 U.S. firms during the period 1998–2015 to test the Substitution versus Complementarity Hypotheses.Research Findings/InsightsThe findings provide, in the main, support for both the Substitution and the Complementarity Hypotheses, with several incentives alignment, internal and external monitoring mechanisms acting as substitutes and complements of each other toward firm acquisitiveness.Theoretical/Academic ImplicationsOur results challenge the notion that corporate governance mechanisms purely function as independent factors and contribute to the configurational perspective of corporate governance. They offer new evidence that combinations or “bundles” of firm‐level governance mechanisms can allow for differing degrees of firm acquisitiveness.Practitioner/Policy ImplicationsDifferent governance “bundles” will have different implications for major strategic decisions such as corporate acquisitions. Firms seeking to control or increase acquisition propensity can thus consider “equifinal” governance configurations, whereby alternative combinations of governance mechanisms can lead to comparable, desired outcomes.

Endowment effect in corporate mergers and acquisitions and its impact on takeover premiums

Endowment effect in corporate mergers and acquisitions and its impact on takeover premiums

Corporate control and the choice of investment financing: the case of corporate acquisitions in India

The market for corporate control offers a rich framework to study the interaction between investment and financing decisions. Do corporations have specific preferences for the means of financing acquisitions, such using cash or equity to pay the claims of the target firm’s shareholders? This study builds a unique sample of 1041 corporate acquisitions over the period 2000–2018 in India, a major emerging economy with fast-growing capital markets. The study investigates separately corporate preferences for the means of payment and the financing sources for acquisitions, using multinomial logit and nested logit models. First, we find that different factors explain the payment and financing decisions. Second, the cash payment decision is best explained by the target’s relative size, greater tender offers, cross-border deals, and cash reserves. Third, the findings are most aligned with pecking order theory and cost of capital considerations.

Business model innovation and digital transformation in global management consulting firms

Purpose This paper contains an exploratory analysis of the business model innovations (BMIs) that management consulting firms (MCFs) undertake to remain competitive during digital transformation. Design/methodology/approach This paper uses data from a longitudinal multiple case study of the European practices of major global MCFs to provide an overview of how they reconfigure their business model (BM) to gain competitive advantages. It maps BMIs in MCFs through value creation innovation, value proposition innovation and value capturing innovation. Findings There is a shift in value proposition from solely giving advice or supporting information technology (IT) implementation to providing end-to-end digital solutions. To materialize value propositions, MCFs acquire new knowledge and digital assets through talent scouting, and mergers and acquisitions (MA thus, they focus on expanding, creating their ecosystems and adopting platforms' configuration and characteristics. Research limitations/implications Inductively, the authors reached an analytical generalization through six propositions and a theoretical frame that embeds propositions in the previous literature. Future research should test them across the overall management consulting industry. Practical implications MCFs are recognized as drivers of innovation and BMIs in most client firms. However, MCFs are rarely analyzed with respect to their BMIs. Understanding how MCFs innovate their business models (BMs) to provide digital transformation (DT) consulting services is relevant for delivering management innovation across industries. Originality/value This is the first exploratory study on BMI inside global MCFs during DT.

COMPARATIVE ANALYSIS OF THE STATE AND REGULATION OF AGRICULTURE IN JAPAN , SOUTH KOREA AND CHINA

The article is devoted to the study of general and special characteristics of the condition and state regulation of agriculture in three East Asian countries: China, Japan, and South Korea. It is determined that there are several historical similarities associated with the Asian way of production, low land use, high dependence on food imports, rapid urbanization and high population density. The topic of food security is relevant for all three countries. The comparative analysis made it possible to identify and specify important differences in the process and results of the modernization of agriculture in the three countries. Especially in terms of the level and speed of technical and technological development, domestic state support for agriculture, foreign trade policy, changes in the trade balance for agricultural goods, the inclusion of countries in the import of GM seeds and the production of organic food, positions in the ratings of the global food security index. The article focuses on the issues of commercialization of biotechnological crops and China's strategy aimed at future global dominance in the field of agricultural science and technology. Using the mechanism of international corporate mergers and acquisitions, the Chinese company with state participation entered the top five world leaders in the production of GM seeds and IT platforms for precision farming.

Minority shareholder treatment surrounding the Dell MBO

PurposeThis paper is a clinical examination of the October 2013 Management Buyout of Dell Inc. by founder Michael Dell and Silver Lake Partners for a total consideration of $13.88 per share. The proposed transaction was targeted by shareholders unhappy with the deal price and voting framework. Various shareholders went on to file an appraisal suit. Examining these events yields insights into shareholder rights issues in a major transaction.Design/methodology/approachThe paper examines events surrounding the acquisition including the negotiation process, go-shop period, shareholder activist demands for a higher price, shareholder voting and the subsequent appraisal trial and appeal.FindingsDespite suggesting Dell's board fulfilled its fiduciary duties, Delaware Vice Chancellor Travis Laster awarded petitioning shareholders $17.62 per share, a 27% premium to the final deal consideration. This article draws on Laster's decision and research examining topics raised by the surrounding events to argue minority shareholder interests were not sufficiently protected.Research limitations/implicationsThe Dell transaction represents only one data point. Moreover, Vice Chancellor Laster's decision was reversed on appeal.Originality/valueNevertheless, the paper discusses the nuances surrounding many issues of interest to practitioners involving large going private transactions. It could also be used to illustrate many “real world” perspectives in an advanced corporate finance or mergers and acquisitions class.

Should Shareholders Have a Say on Acquisitions?

Shareholders of U.S. corporations have lost billions of dollars in acquisitions they never approved. In the United Kingdom, the listing rules give shareholders a binding say when targets are large relative to their acquirers.A transatlantic comparison of M&A activity suggests that if U.S. shareholders had a say on acquisitions, U.S. acquirers would do fewer value‐destroying acquisitions and their own shareholders would experience smaller losses. The authors also report finding a significant difference in the performance of the large U.K. deals that are subject to a mandatory vote and those that are not. The United States has given shareholders a mandatory say on pay. Is it time for U.S. shareholders to have a binding say on corporate acquisitions?

Internal governance and corporate acquisition activities

The literature shows that the performance of bidders has been historically poor both in the short run and in the long run. Agency theory tells us that unless CEO owns 100% of the firm, the decision-making process would deviate from shareholder value maximization. Building upon the theory of internal governance by Acharya et al. (J Financ 66(3):689–720, 2011), this study documents the salutary effect of the novel governance mechanism on corporate acquisition activities. Internal governance is optimal if neither the CEO nor her subordinates are dominating. The curvilinear relationship suggests that when power and responsibility sharing is balanced in acquiring firms, myopic CEOs would have lower acquisition propensity, lower likelihood of targeting public firms, higher deal completion rate, and stronger short term gains. A system of regression equations is applied to mitigate the concerns about potential endogeneity and selection bias. Moreover, the empirical evidence demonstrates that good internal governance has strong predictive power for long term performance in the post-acquisition period, which sheds light on the influential role of subordinates in post-deal integration.

Impact of Mergers and Acquisitions on the stock price behavior of Merger and Acquirer Companies in Oil and Gas Industry

Impact of Mergers and Acquisitions on the stock price behavior of Merger and Acquirer Companies in Oil and Gas Industry

Economies of Scope and Optimal Due Diligence in Corporate Acquisitions

This study develops a theory of due diligence in corporate acquisitions. Using a formal model, the study situates due diligence in the context of economies of scope, which are often sought by acquiring organizations that have incomplete information about such economies. Relatedness, the key determinant of economies of scope, and ambiguity, the key determinant of incomplete information, are used to derive the optimal due diligence effort and the returns to an acquiring organization that result from that effort. The derived predictions qualify both the general appeal to extensive due diligence and the general recognition of the costliness of due diligence. These predictions can be tested in future empirical research on corporate acquisitions and may guide corporate acquirers on the optimal allocation of their due diligence efforts in the mergers and acquisitions market.

Asset Volatility and Capital Structure: Evidence from Corporate Mergers

We exploit cross-sectional variation in the predictable changes in asset volatility following corporate acquisitions to identify the effect of business risk on capital structure. We find that postmerger changes in leverage and cash holdings are strongly predicted by expected asset volatility changes estimated using premerger information. These capital structure adjustments are partly achieved through the choice of payment method. Our findings provide direct evidence for the coinsurance effect of mergers on debt capacity. More broadly, they suggest that firm risk is a first-order determinant of leverage, consistent with the tradeoff theory of capital structure. Our coefficient estimates imply that a one-standard deviation decline in a firm’s asset volatility corresponds to a 7.5-percentage point increase in leverage. This paper was accepted by Renee Adams, finance.

Board interlocks and imitation in corporate acquisitions: A literature review and avenues for future research

Interlocking directorates create the conditions for social embeddedness and represent a key driver of the diffusion of strategies and practices (Okhmatovskiy & David, 2012). Among the multiple focuses of analysis, board interlocks have been regarded as a source of inter-organizational imitation in the context of corporate acquisitions (Xia, Ma, Tong, & Li, 2018; de Sousa Barros, Cárdenas, & Mendes-Da-Silva, 2021). Imitation indeed has been acknowledged as one of the primary implications of interlocking directorates (Shropshire, 2010). This study, therefore, offers an in-depth summary and discussion of how interlocks of business elites influence corporate acquisitions. Multiple contributions are provided. First, the paper develops a thematic analysis in which multiple research focuses are identified, namely acquisition activity and emphasis, acquisition timing in mergers and acquisitions (M&A) waves, acquisition process, and acquisition premium. Second, it elaborates on a number of potential avenues for future research. Specifically, it identifies three main lines of inquiry related to the imitation scope, performance at both firm- and industry-level, and potential theoretical cross-fertilizations. Moreover, methodological considerations are discussed especially in terms of operationalization choices and their implications. To the best of the author’s knowledge, this paper represents the first attempt to review the literature on the interlocks-acquisition field.