Private Targets Research Articles

The dark side of well-connected directors: Evidence from private firm acquisitions

We adopt a difference-in-difference approach to investigate the relationship between the board network and the acquirer's cumulative abnormal returns (CAR) by examining the influence of the directors' sudden death or retirement. We find that firms experiencing the departure of well-connected directors tend to obtain higher CAR when acquiring private targets. This suggests that well-connected directors may reduce the values of mergers and acquisitions (M&A). However, acquirers with greater external monitoring can reduce this negative effect. We also find that these directors with prior acquisition experience are more likely to secure board positions. In summary, these results support the agency problem that well-connected directors tend to make more M&A deals for their private benefits.

Does continuous disclosure affect the market reaction to mergers and acquisitions announcements?

We examine the association between the degree of continuous disclosure by bidders and the market reaction to the announcement of 3512 mergers and acquisitions (M&As) by Australian bidders during the period 2000–2017. Using four proxies for continuous disclosure (total number of disclosures, total number of sensitive disclosures, total number of pages, and total number of sensitive pages), we find a positive association between the market reaction to M&A announcements and the level of continuous disclosure made by bidders. These findings imply that investors, when assessing M&A deals, find bidders' disclosures to be informative and value relevant. Further analyses reveal that this positive association is more pronounced for private target acquisitions, stock-financed acquisitions, and unrelated acquisitions.

Unlocking the mergers and acquisitions puzzle in the United Arab Emirates: Investigating the impact of corporate leverage on target selection and payment methods.

Following a long stream of literature on the drivers of Mergers and Acquisition (M&A) activities, this study examines the effect of corporate leverage on several decisions of M&A deals in the context of the United Arab Emirates (UAE). Using M&A data from the Thomson One database for the period between 2005 and 2022, we find that corporate leverage significantly influences the type of M&A target. This study further adds to the prior literature on the contradictory behaviours of high and low leverage firms by examining whether acquisition decisions differ amongst them in M&A deals in the UAE context. Results indicate that high (low) leverage firms are less (more) likely to acquire private targets and more (less) inclined to acquire a target from a different (same) industry. Furthermore, our results show that the relationship between the method of payment used in M&A deals and corporate leverage is insignificant. We control for endogeneity using Heckman's two-stage method. In brief, this paper extends the literature with conclusive evidence that considerations of capital structure can significantly anticipate and explain firms' behaviour toward M&A choices. The implication of findings may include a call to reform some aspects of the Competition Law in the UAE by requiring private firms to enhance their disclosure practices similar to their public counterparts.

The Impact of M&A Delistings on the Information Environment of Industry Peer Firms

ABSTRACT This study documents that M&A delistings are associated with a deterioration in the quality of analysts’ information environment for industry peer firms, measured by an increase in analysts’ absolute forecast errors and dispersion. This effect persists for six quarters and is larger when the delisting target firm contributes relatively more to the industry information environment. Further, we find that, among analysts forecasting earnings for an industry peer firm, those who also followed the delisted target firm in the pre-M&A period experience a larger increase in their absolute forecast errors. A comparison based on public versus private target firms also suggests that the loss of target firms’ public disclosures plays a role in the deterioration in the quality of analysts’ information environment. In additional analyses, we find evidence consistent with this effect resulting from a deterioration in analysts’ ability to exploit across-firm information complementarities. JEL Classifications: G14; G18; G34; M40.

HUBUNGAN PENGETAHUAN MANAJEMEN BERBASIS SEKOLAH DAN KECERDASAN EMOSIONAL DENGAN KINERJA KEPALA SEKOLAH DASAR DI KOTA BEKASI

The aim of this research is to determine the relationship between school-based management knowledge, emotional intelligence together with the performance of private target school principals in Bekasi City. The research method used was quantitative in the form of a descriptive study with a sample of 173 teachers selected randomly from 12 school sub-districts. Data collection is carried out by distributing questionnaires or questionnaires. The data analysis used was descriptive statistics, multiple correlation coefficient, coefficient of determination and regression analysis with the help of SPSS version 20. The research results showed that there was a significant relationship between school-based management knowledge, emotional intelligence and the performance of private elementary school principals in Bekasi City. This means that together the variables of school-based management knowledge and emotional intelligence make a major contribution to the principal's performance variables.

Leveraging VR/AR/MR/XR Technologies to Improve Cybersecurity Education, Training, and Operations

The United States faces persistent threats conducting malicious cyber campaigns that threaten critical infrastructure, companies and their intellectual property, and the privacy of its citizens. Additionally, there are millions of unfilled cybersecurity positions, and the cybersecurity skills gap continues to widen. Most companies believe that this problem has not improved and nearly 44% believe it has gotten worse over the past 10 years. Threat actors are continuing to evolve their tactics, techniques, and procedures for conducting attacks on public and private targets. Education institutions and companies must adopt emerging technologies to develop security professionals and to increase cybersecurity awareness holistically. Leveraging Virtual/ Augmented/Mixed/Extended Reality technologies for education, training, and awareness can augment traditional learning methodologies and improve the nation’s cybersecurity posture. This paper reviews previous research to identify how distance and remote education are conducted generally, and how Virtual/Augmented/Extended/Mixed reality technologies are used to conduct cybersecurity awareness training, cybersecurity training, and conduct operations. Finally, barriers to adopting these technologies will be discussed. Understanding how these technologies can be developed and implemented provides one potential way of overcoming the cybersecurity workforce gap and increasing the competencies and capabilities of cybersecurity professionals.

LABOR INTENSITY, ADVERTISING INTENSITY, AND FIRM PERFORMANCE: EVIDENCE FROM MERGERS & ACQUISITIONS

This study examines the relation between a firm’s labor intensity and its operating performance. Using a large sample of US public firms from the period 2001 to 2018, we find that firms with a higher level of labor intensity are less likely to engage in mergers & acquisitions (M&As) activities. Our main finding suggests that a firm’s operating performance, proxied by return on assets and return on equity, decreases with a higher level of labor intensity. Further analysis shows that if labor-intensive firms engage in M&As, they are less likely to use cash and stock as payment methods and consider the target’s legal forms of business orientation. The negative relation between labor intensity and firm performance is aggravated (attenuated) by the firm’s advertising intensity (stock payment method and private target of potential M&A characteristics). Finally, labor productivity is also negatively associated with labor intensity.

Top-tier advisors and the market feedback dynamics in cross-border M&As

We provide evidence that the presence of top-tier advisors increases managers' propensity to withdraw from cross-border mergers and acquisitions (CBAs) with poor market returns around the announcement. This effect is stronger for private target acquisitions, in which information asymmetry is expected to be more pronounced, and smaller bidders, who are likely to lack the expertise required to process information themselves. This suggests that managers assisted by reputable investment banks consider negative market feedback in informationally challenging deals. Our results are robust to several endogeneity tests. We provide novel inferences about the informative role of stock markets in shaping advisory roles in respect of M&As.

Earnings Management During the Earnout Period of Private Targets

Earnings Management During the Earnout Period of Private Targets

The importance of target information in the acquisition of privately held firms

Privately held companies make-up the vast majority of targets in corporate takeovers. When disclosure is not required, acquiring firms usually provide little to no information about either the deal or the target in these transactions. The absence of such information may be innocuous if investors believe it to be unimportant. We examine whether investors respond to basic information disclosed by acquirers of private targets. Our evidence suggests investors respond to the disclosure of deal value whereas sales information of the target is unimportant compared to transactions where such information is not disclosed. Our results are robust to using a matched sample of deals with and without the disclosure of deal value and sales information. Using a subset of hand-collected data, our study also provides insight into the method and timing by which acquirers disclose information about private targets. Altogether, our evidence suggests regulatory policies surrounding seemingly insignificant, private acquisitions should consider the disclosure of deal value to be important to investors.

Market Responses to Private and Public Targets: The Role of Goodwill Valuation*

AbstractInvestors overprice goodwill value acquired from a private target during a merger and acquisition (M&A) announcement. However, the overpricing of goodwill is corrected in the years following the deal's completion. Our results show that investors predict the decreasing value of goodwill and promptly adjust their pricing regardless of goodwill impairment. The differential market reactions to goodwill between private and public targets are economically significant. The pricing on goodwill obtained from a private target is 47% higher around the announcements and 44% (33%) lower one (two) year(s) after the M&A completion than that from the public target.

Public peers, accounting comparability, and value relevance of private firms’ financial reporting

We examine whether higher accounting comparability between public and private firms leads to higher value relevance of private firms’ reported financial information. To help develop our hypotheses, we conduct a series of interviews with M&A valuation experts. The experts indicate that comparable accounting between public and private firms allows them to apply public firms’ valuation multiples directly to private firms, which facilitates the use of private firms’ financial reporting in their valuations. Using a large sample of M&A transactions with private target firms in the European Union around the mandatory adoption of IFRS by public firms, we find that private firms’ reported financial information has higher value relevance when it has higher accounting comparability to that of public firms. Furthermore, we find that the impact of accounting comparability is stronger when public peer information is more precise. Our findings are consistent with higher accounting comparability facilitating a spillover of valuation information from public to private markets, which leads to greater value relevance of private firms’ reported financial information.

A Novel Distant Domain Transfer Learning Framework for Thyroid Image Classification.

Medical ultrasound imaging technology is currently the preferred method for early diagnosis of thyroid nodules. Radiologists’ analysis of ultrasound images is highly dependent on their clinical experience and is susceptible to intra- and inter-observer variability. Although end-to-end deep learning technique can address these limitations, the difficulty of acquiring annotated medical image makes it very challenging. Transfer learning can alleviate the problems, but the large gap between source and target domain will lead to negative transfer. In this paper, a novel transfer learning method with distant domain high-level feature fusion (DHFF) model is proposed. It reduces the distribution distance between the source domain and the target domain while maintaining the characteristics of respective domains, which can avoid excessive feature fusion while enabling the model to learn more valuable transfer knowledge. The DHFF is validated by multiple public source and private target datasets in experiments. The results show that the classification accuracy of DHFF is up to 88.92% with thyroid ultrasound auxiliary source domains, which is up to 8% higher than existing transfer and distant transfer algorithms.

The liquidity and trading activity effects of acquisition payment methods: Evidence from the announcements of private firms' acquisitions

We investigate how the liquidity and trading activity effects of the announcement of the acquisition of private targets vary by payment method. We find significant increases in trading activity around acquisition announcement dates irrespective of the payment method used; however, fluctuations are lower for acquisitions financed by earnouts and cash. Similarly, the stocks of acquirers using cash and earnouts are also less affected by a general loss of liquidity that accompanies announcements. We show that these effects are explained by the interpretation of cash acquisition by the market as an option used when acquirers perceive no risk of being adversely selected, and the potential of earnout as an adverse selection risk reduction tool.

Target Value Uncertainty and Goodwill Impairment: Public and Private Targets

Target Value Uncertainty and Goodwill Impairment: Public and Private Targets

The JOBS Act and mergers and acquisitions

We examine how the Jumpstart Our Business Startup Act (JOBS Act) affects mergers and acquisitions. We find that U.S. private targets are valued higher after the JOBS Act relative to public targets acquired by U.S. acquirers. The announcement returns of acquirers who acquired U.S. private targets after the JOBS Act are lower. The effect concentrates on private targets that are unlikely to qualify as small reporting companies should they choose to go public. We also show that the results are unlikely to be driven by changes in deal synergy.

Economic policy uncertainty and acquisition performance: Australian evidence

We investigate the influence of economic policy uncertainty on the market valuation of acquisitions undertaken by Australian firms, finding a negative association between economic policy uncertainty and abnormal returns earned by acquirers. In general, with greater economic policy uncertainty, acquirers pay higher premiums, execute transactions more quickly and are less likely to complete deals. With respect to acquisition choices, acquirers prefer to purchase public targets versus private targets, use stock swaps versus cash in financing deals and are less likely to make cross-border acquisitions. Deals completed at a time of heightened economic policy uncertainty are found to contribute to acquirers’ significant underperformance in the long run. Our main findings are robust after addressing issues related to sample selection bias and selection based on observable firm characteristics. Our findings support the notion that economic policy uncertainty adversely affects acquisition outcomes in Australia.

Industry asset revaluations around public and private acquisitions

Revaluations of industry peers around horizontal acquisitions are negative when targets are private, but positive when they are public. We posit this “revaluation spread” arises because acquiring managers favor private targets when public firms are overvalued. Targets’ ownership status thus conveys information about industry assets’ misvaluation and triggers predictable revaluations. Supporting this idea, private acquisitions occur when private targets appear “cheaper” than public firms based on valuation multiples or the trading activity of industry insiders. The revaluation spread varies with overall market misvaluation, predicts future industry returns, and is unrelated to peers’ and industries’ fundamentals.

Trading Applications Using EVA Style Analysis

The authors apply economic value added (EVA) style analysis to four corporate actions: acquisitions, share repurchases, stock splits, and dividend announcements. Firms acquiring public targets provide significant shorting opportunities on value-destroying growth and “wise” restructurers. Acquiring firms with private targets provide longing opportunities on underinvesting and wise restructurers. For share repurchases, the authors find consistent alpha opportunities on repurchasing firms by longing their stocks, with the highest alpha on the wise restructurers. The post-announcement returns for stock splits were negative for value destroyers and positive for restructurers. For dividend increases, post-announcement effects are small except for positive alpha on the wise restructurers. For dividend decreases, negative abnormal returns continue for the value destroyers and restructurers. The best longing opportunity is on the stocks of share-repurchasing companies in a wise restructurer position, while the best shorting opportunity is on the stocks of dividend-decreasing companies in a value-destroyer position. For active investors, EVA style analysis illuminates the naiveté of a “one size fits all” trading strategy on corporate actions.

CEO inside debt and the acquisition of private targets

AbstractWe find a strong positive association between the inside debt holdings (pension benefits and deferred compensation) of CEOs and announcement‐period abnormal returns (CARs) of acquiring firms bidding for private targets. In addition, gains to acquirers with high inside debt persist for at least 3 years post‐acquisition. Further analyses suggest that our results are largely driven by firms with lower levels of manager‐shareholder agency conflicts as proxied by higher transparency in firm activities, presence of a less powerful CEO, or presence of stronger monitoring. Our results are robust to an array of sensitivity tests.