Merger Waves Research Articles

Data Security and Merger Waves

We examine whether data security affects the merger waves in the era of big data. Exploiting the staggered adoption of laws that require mandatory disclosure of data breaches across states, we find a significant increase in the number and values of acquisitions of a state’s data-intensive companies after the state enacted the laws. The effects are stronger among industries that are more competitive and technology intensive. Acquirers offer a higher premium for data-intensive targets in states that have adopted the laws. These results suggest that the data breach laws facilitate M&A deals by mitigating targets’ data lemon problem.

Banking concentration and financial development in the MENA region

PurposeBank consolidations in many Middle East and North Africa (MENA) countries have been proceeding at a rapid pace, leading to a decline in the number of banks and an increase in market concentration. This may raise concerns regarding the impact of such increase in concentration on the behaviour of banks and consequently on the financial development. Therefore, this study aims to examine the impact of concentration on the financial development of MENA region.Design/methodology/approachThe study adopts fully modified ordinary least squares model on a heterogeneous, non-stationary, cointegrated panel data set. The exploited panel is formed of 15 MENA countries and covers the period 1996–2014.FindingsThe empirical results show that concentration per se is not harmful for financial development. Nevertheless, concentration combined with bank market power may deteriorate the development of MENA financial systems.Originality/valueIn addition to considering an understudied region, the research presents very important findings, which suggest that if banks obtain market power, an increase in concentration following a wave of bank mergers, could weaken the financial development.

Black hole spectroscopy for KAGRA future prospect in O5

Ringdown gravitational waves of compact binary mergers are an important target to test general relativity. The main components of the ringdown waveform after merger are black hole quasinormal modes. In general relativity, all multipolar quasinormal modes of a black hole should give the same values of black hole parameters. Although the observed binary black hole events so far are not significant enough to perform the test with ringdown gravitational waves, it is expected that the test will be achieved in third generation detectors. The Japanese gravitational wave detector KAGRA, called bKAGRA for the current configuration, has started observation, and discussions for the future upgrade plans have also started. In this study, we consider which KAGRA upgrade plan is the best to detect the subdominant quasinormal modes of black holes in the aim of testing general relativity. We use a numerical relativity waveform as injected signals that contains two multipolar modes and analyze each mode by matched filtering. Our results suggest that the plan FDSQZ, which improves the sensitivity of KAGRA for broad frequency range, is the most suitable configuration for black hole spectroscopy.

Activism and empire building

Hedge fund activists target firms engaging in empire building and improve their future acquisition and divestiture strategy. Following intervention, activist targets make fewer acquisitions but obtain substantially higher returns by avoiding large and diversifying deals and refraining from acquisitions during merger waves. Activist targets also increase the pace of divestitures and achieve higher divestiture returns than matched non-targets. Activists curtail empire building through the removal of empire building chief executive officers (CEOs), compensation based incentives, and appointment of new board members. Our findings highlight an important channel through which activists improve efficiency and create shareholder value.

The merger paradox, collusion, and competition policy

AbstractThis paper develops a model that formalizes several connections between mergers, collusion, and competition policy. In equilibrium, firms may merge to make collusion sustainable when it cannot be sustained with the original set of firms. A rise in the probability of detecting and prosecuting collusion could induce a wave of mergers, so firms can sustain collusion again. Indeed, mergers could fully neutralize the procompetitive effect of an improvement in collusion detection and prosecution. From a normative perspective, we show that merger policy is crucial when cost synergies are small (or nonexistent) and the competition authority can only deter collusion by restricting mergers. Finally, we highlight that mergers could be more harmful (less beneficial) than expected if the impact that mergers have on the competition regime is properly considered, which suggests a decomposition of the welfare impact of mergers into unilateral and coordinated effects.

DO PRE & POST MERGER INTEGRATION MATTERS IN CROSS BORDER MERGER & ACQUISITION (CBM&A)

This study aims to assess the impact of deal size, value and firm-specific factors on the performance of UK acquiring firms from 2006 to 2016 in short-run. The event window methodology was used to analyze short run effects and standard market model was used to calculate abnormal and expected returns. Short event window was made from one day before the announcement of CBM&A to the one day after the announcement date of the event and from five days before the announcement date to the five days after the date of the announcement of the deal and similarly from ten days before the event was announced for ten days after the event was announced (-1, 1), (-5, 5) and (-10, 10) respectively. The study infers that the UK acquirers do not earn statistically significant positive abnormal returns in the short run. The uni variate analysis shows that the short-run performance of UK acquirers is influenced by acquisition strategy, and the payment methods. After the fifth merger wave, international deals in merger and acquisition along with cross border deals started, which created the value for the economy as well. Since 1985, several deals have been done in the United States and the United Kingdom. This research paper is intended to provide empirical evidence on recent data of CBM&A transactions of the UK acquiring firms. The present study is a indispensable for the firms seeking cross border deals and fills the gap in the existing literature.

Do boundary consolidations alter the relationship between politicians and voters? The case of municipal mergers in Japan

ABSTRACT This paper examines whether boundary changes lead to changes in the relationship between voters and politicians. We focus on the wave of municipal mergers in Japan that took place in the 2000s in order to examine this question. Municipalities with small population size, once they merge with their larger neighbours, would have a small number of voters relative to the size of the electorate in the post-merger municipalities. Therefore, municipal politicians in the post-merger municipalities do not have strong electoral incentives to receive support from geographic areas corresponding with pre-merger municipalities of small population size. Using a survey of voters in 89 locations corresponding with pre-merger municipalities, we demonstrate that voters who live in small municipalities that experienced mergers interact with politicians less frequently and have less favourable impressions of politicians than before the mergers. These patterns are not observed in municipalities that did not experience mergers.

Post M&A innovation in family firms

PurposeThe paper empirically investigates how family firms appropriate acquired resources to become more innovative in the context of merger waves. It draws on resource-based view and the theory of first mover (dis)advantages to examine the implications of the timing of acquisitions on innovation in family firms.Design/methodology/approachThe paper uses a panel data set of Standard & Poor's (S&P) 500 manufacturing firms followed over a period of 31 years.FindingsThe study finds empirical support for the predictions that family firms are more able to utilize acquired resources better than nonfamily firms. Furthermore, targets acquired during the upswing of a merger wave are more valuable to family firms and associated with more innovation than for nonfamily firms.Originality/valueThe paper establishes that resources acquired during the upswing of a merger wave are more valuable, provide better resource synergies and impact innovation positively in family firms than nonfamily firms. Second, the paper makes an empirical contribution that family firms absorb external resources markedly differently and more efficiently than nonfamily firms. Third, the paper enhances a better understanding of the influence of family ownership on the relationship between acquisitions and innovation outputs.

Banking Concentration Impact on Market Structure of Post-Soviet Country – Armenia

The new wave of mergers and acquisitions after the global financial crisis intensified the interest of policy makers and academics in bank concentration and competition and the role of the state in competition policies and regulations (policies and laws that affect the market structure and degree of competition). It is important to not only make sure that banking sector is competitive, transparent and efficient, but also stable. The purpose of the study was to investigate and analyze the degree of concentration in Armenian banking market and its impact on competition and market structure of financial markets over the period of 2013-2017. Both the structural and the non-structural measurement approaches of concentration and competition, along with the desk research, a case study and interviews with the financial sector professionals and independent expert was employed to address research purpose. The findings of the study indicate that, in the developing country such as Armenia high concentration implies low or moderate competition levels and relationship between concentration and stability seems to be negative, meaning that high concentration results low stability of this banking market. The banks in Armenia have ability of extracting monopolistic profits from big interest rate spreads by setting less favorable prices to customers based on collusive and non-competitive behavior in highly concentrated market. Competition level and market structure of this country results in high prices of financial product and low access to finance. Armenian financial markets are bank dominated, characterized with monopolistic banking structure, with leading roles of a few universal profile banking institutions, dominating not only banking sector, but whole financial market.

Total productivity and cost efficiency dynamics of US merging banks: A non-parametric bootstrapped analysis of the fifth merger wave

This paper investigates the productivity characteristics and cost efficiency dynamics of US acquiring banks over the period from 1992 to 2003. The findings show that large merging banks tend to have the same productivity scores compared to their peer banks. Small merging banks, on the other hand, experienced lower productivity than their peers. The source of the acquirers’ productivity seems to be the efficiency change rather than the frontier shift. Cost efficiency results show that small and large merging banks maintained higher cost efficiencies over their peers for the whole period motivated by higher technical efficiency scores, meaning that the large acquirers’ ability to maximize their outputs given fixed inputs is best relative to merging and non-merging banks of different sizes. The principal component analysis of the cost efficiency sub-components indicate that the merging banks principal cost efficiency components are mainly of technical and pure technical efficiencies but after the merger, allocative efficiency increased substantially at the expense of technical and pure technical efficiencies, while the peer banks cost efficiency remained totally dependent on technical and pure technical efficiencies.

Life After 5: How Tight-Oil Wells Grow Old

Tight-oil production in the US set new records in 2019, but the banner year ended with an important caveat: more than two-thirds of crude production from shale plays flowed from wells drilled in the past 2 years. The figure reflects the fast-paced life of horizontal wells while also highlighting that older assets are not contributing as originally expected. Wells brought online since the start of 2019 represented 45% of total US onshore production—3.5 million B/D out of an all-time high 7.74 million B/D. As more late-year production data flows in, the 2019 wells might represent closer to 50% of the total, according to information from Shale Profile, an analytics firm that aggregates public data from US oil and gas regulators. Another 25%, or about 1.9 million B/D, came from wells that started producing in 2018. The remainder of US onshore supply came mostly from the 93,000 wells that were completed between 2010–2017. The importance of this older stock of horizontal wellbores is coming into focus as the early-time-decline rate of new wells accelerates, prompting upstream analysts at IHS Markit to forecast that US tight-oil production will peak in 2021. Unconventional wells in the most prolific shale plays tend to see decline rates of more than 50% in their first year, and another 30% in their second. One of the key assumptions that justified the economics of such production profiles held that, after about 5 years, those steep declines would transition to the modest 5–10% annual drops seen in conventional wells, and remain there for many years. The most recent production data reveal that tight oil wells are not living up to this standard. At 5 years of age, horizontal wells in the Permian Basin and Williston Basin’s Bakken Shale share average terminal decline rates of around 17%. The figure for wells of the same age in the Eagle Ford Shale is 23.5%. On average, it takes 8–10 years for these wells to fall below an annual decline threshold of 10%. These terminal decline rates represent a clear challenge for current reserves and ultimate recovery estimates from wells that were expected to produce economically for 30 or more years. As a result, shale producers are now advised to not use conventional wells as a guide, or else run the risk of overstating and overvaluing unconventional assets (URTeC 432). The sector’s awareness of long-term production shortfalls is also considered to be the driving force behind a new wave of mergers and acquisitions that has left constrained operators seeking to combine with peers holding proportionally large positions of undrilled acreage.

Gamma Rays from Kilonova: A Potential Probe of r-process Nucleosynthesis

Abstract The mergers of compact binaries with at least one neutron star component are the potential leading sites of the production and ejection of r-process elements. Discoveries of galactic binary pulsars, short gamma-ray bursts, and gravitational-wave detections have all been constraining the rate of these events, while the gravitational wave plus broadband electromagnetic coverage of binary neutron star merger (GW170817) has also placed constraints on the properties (mass and composition) of the merger ejecta. But uncertainties and ambiguities in modeling the optical and infrared emission make it difficult to definitively measure the distribution of heavy isotopes in these mergers. In contrast, gamma rays emitted in the decay of these neutron-rich ejecta may provide a more direct measurement of the yields. We calculate the gamma production in remnants of neutron star mergers, considering two epochs: a kilonova epoch, lasting about two weeks, and a much later epoch of tens and hundreds of thousands of years after the merger. For the kilonova epoch, when the expanding ejecta is still only partially transparent to gamma radiation, we use 3D radiative transport simulations to produce the spectra. We show that the gamma-ray spectra associated with beta- and alpha-decay provide a fingerprint of the ejecta properties and, for a sufficiently nearby remnant, may be detectable, even for old remnants. We compare our gamma spectra with the potential detection limits of next generation detectors, including the Lunar Occultation Explorer (LOX), the All-sky Medium Energy Gamma-ray Observatory (AMEGO), and the Compton Spectrometer and Imager (COSI). We show that fission models can be discriminated via the presence of short-lived fission fragments in the remnant spectra.

Value creation around merger waves: The role of managerial compensation

AbstractThis paper examines the relation between executive compensation and value creation in merger waves. The sensitivity of CEO wealth to firm risk increases the likelihood of out‐of‐wave merger transactions but has no influence on in‐wave merger frequency. CEOs with compensation linked to firm risk have better out‐of‐wave merger performance in comparison to in‐wave mergers. We also present evidence that cross‐sectional acquirer return dispersion is greater for in‐wave acquisitions. Our results suggest that the underperformance of acquiring firms during merger waves can be attributed in part to ineffective compensation incentives, and appropriate managerial incentives can create value, particularly in non‐wave periods.

Особливості корпоративного управління процесами злиття та поглинання

The article examines the main features and identifies the main trends in the global M&A market. The modern development of the economy is characterized by the spread of the processes of globalization, and it can be noted that, one way or another, the latest waves of mergers and acquisitions are tightly related to the flow of these processes. The history of mergers and acquisitions processes in the world economy shows that all surges in mergers and acquisitions agreements were and are accounted for periods of structural changes, industrial rises, technological revolutions, significant organizational restructuring of the world economy. Mergers and acquisitions of companies are one of the most important business development instruments in the market economy. The purposes of these processes are often the growth of company and the use of various kinds of synergies, which is manifested in strengthening its impact on markets and improving business efficiency. Most mergers and acquisitions agreements are concluded by industrialized countries, their role is increasing for developing countries. The dynamics of the M&A processes market will largely depend on the ability of companies to enter into large contracts announced either at the end of the past year or earlier this year. Only then it could it be stated that the growth of activity in the mergers and acquisitions market has become a long-term trend. Many experts believe that a new wave of M&A will inevitably lead to an increase in unemployment, and this, in turn, will lead to an aggravation of the social situation and require additional costs from the budget.

Особливості процесів злиття та поглинання у фармацевтичній промисловості

ncreasing mergers and acquisitions in the pharmaceutical industry have raised fears that unprecedented market concentration will weaken competition. Two of the most important concerns for the pharmaceutical industry are concerns that these mergers will reduce the market for new developments, and concerns that the combination of large marketing efforts and sales will increase the influence of individual pharmaceutical manufacturers and weaken competition in the industry. This article argues that none of the above dangers are systematically justified. However, there is a potential risk of market concentration at the stage of regulatory approval of mergers and acquisitions. The rapid development of the pharmaceutical industry in a pandemic leads to the need to combine interests. That is why the consideration of the topic of mergers and acquisitions on the example of the pharmaceutical industry is very relevant. The article identifies how these structural changes contribute to the current wave of mergers among active pharmaceutical market participants and how the potential harm of competition can be reduced.

Banking Concentration Impact on Market Structure of Post-Soviet Country – Moldova

The new wave of mergers and acquisitions after the global financial crisis intensified the interest of policy makers and academics inbank concentration and competition and the role of the state in competition policies and regulations (policies and laws that affect themarket structure and degree of competition). It is important to not only make sure that the banking sector is competitive, transparentand efficient but also stable.The purpose of the study was to investigate and analyze the degree of concentration at the Moldovan banking market and itsimpact on competition and market structure of financial markets over the period of 2013-2017. Both structural and non-structuralmeasurement approaches of concentration and competition along with the desk research, a case study and interviews with thefinancial sector professionals and independent expert were employed to address the research purpose.The findings of the study indicate that in the developing country such as Moldova high concentration implies low competition levelsand relationship between concentration and stability seems to be negative, meaning that high concentration results lower stability ofthis banking market. Banks in Moldova have the ability of extracting monopolistic profits from big interest rate spreads by setting lessfavorable prices to customers based on collusive and non-competitive behavior in a highly concentrated market. The competitionlevel and market structure of this country results in high prices of financial product and low access to finance. Moldovan financialmarkets are bank dominated, characterized with a monopolistic banking structure, with leading roles of a few universal profile bankinginstitutions, dominating not only the banking sector but also whole financial market.Keywords: banking, competition, concentration, financial market, stabilityJEL: G1, G2, G21, D4, G14

An Empirical Study of OmniAmerican Bancorp’s Merger with and into Southside Bancshares

In this paper, we investigate the short- and long-term wealth effect of OmniAmerican Bancorp’s merger with and into Southside Bancshares. Given that OmniAmerican Bancorp made a ‘take-me-over’ announcement four months before the merger negotiations commenced, which may have given rise to market anticipation, we have employed a longer short-term testing window in order to capture the price run-ups. We show that this acquisition increased OmniAmerican Bancorp’s shareholder wealth by $35.44 million whereas decreased Southside Bancshares’ shareholder wealth by $25.61 million. However, statistically insignificant abnormal returns were found in both the short and long terms for the shareholders of the combined entity, indicating the acquisition’s overall value-neutral nature. This finding appears consistent with the (on average) non-value-destroying results documented in the post-crisis merger wave, but it seems inconsistent with the value-enhancing results observed in intra-state commercial bank mergers. Assuming that gains from the revaluation of the combined value of the bidder and target stocks typically come from the merged entity’s incremental earnings, we conclude that the market’s value-neutral assessment was correct in terms of predicting no significant profit enhancement of the merged entity when full integration of OmniAmerican Bancorp into Southside Bancshares was achieved.

Merger Waves Through Market Leadership

I present a merger model where a merged entity is assumed to acquire the market leadership from a linear, symmetric, simultaneous, homogeneous good, quantity-setting oligopoly and where efficiency gains are ruled out. If firms cannot merge to monopoly, mergers occur in waves, and for each number of pre-merger firms, I endogenize: (i) the number of mergers in a wave; (ii) the number of firms involved in each merger; and (iii) the order in which the mergers take place. If monopolization is allowed, in the majority of cases, all firms prefer to merge into a single entity. This suggests the strategic nature of merger waves as a response to the prohibition of monopolization. Finally, in sharp contrast with the existing results on horizontal mergers under simultaneous quantity competition without efficiency gains, and in line with empirical findings, profitability is ensured even if mergers involve a small number of firms.

Patent Trolls and the Market for Acquisition

Frivolous patent-infringement claims increase the cost of innovation for small businesses and force them to exit via premature and discounted acquisitions. This study investigates the effect of abusive patent-infringement claims by patent trolls on acquisitions of small firms. I exploit the staggered adoption of anti-patent troll laws in 35 states as a quasi-natural experiment and find that the laws have two effects on acquisitions. First, the number of acquisitions of small businesses by large firms declines after these laws are passed. Second, the anti-troll laws increase the acquisition price for large firms. I find that the market reflects the increased cost of acquisition following the passage of anti-troll laws as measured by the lower acquisition announcement returns. Moreover, I find evidence that large firms increase R&D expenditure after the adoption of state laws. Using a sample of acquisitions that are plausibly unaffected by the state laws, I disentangle alternative explanations such as local economic shocks, industry-wide changes and merger waves. Overall, the findings suggest that the anti-patent troll laws increase the value of small innovative firms.

When Is One Plus One More Than Two? Theory and Evidence of Merger Motivations

AbstractWe devise a neoclassical economic model that reveals the underlying motivations for mergers, without resorting to distorted firm decisions or stock market inefficiency. Using empirical analyses to verify the model's predictions, we discover that mergers are more likely in economic booms than in recessions. Furthermore, we assert that a firm with insufficient physical capital is likely a bidder in a merger, whereas a firm with large physical capital is likely a target. Our findings are largely consistent with the waves of mergers during economic booms and the theory on operational synergies.