Financial characteristics of acquiring firms and their relation to the wealth effects of acquisition announcements

1993 ◽  
Vol 17 (2) ◽  
pp. 21-35 ◽  
Author(s):  
Emery A. Trahan
Keyword(s):  
Wealth Effects ◽  
Acquiring Firms ◽  
Financial Characteristics ◽  
Acquisition Announcements

The effect of corporate governance mechanisms on European Mergers and Acquisitions

2018 ◽  
Vol 18 (5) ◽  
pp. 965-986 ◽  
Author(s):  
Ioannis Tampakoudis ◽  
Michail Nerantzidis ◽  
Demetres Soubeniotis ◽  
Apostolos Soutsas
Keyword(s):  
Corporate Governance ◽  
Mergers And Acquisitions ◽  
Economic Impact ◽  
Abnormal Returns ◽  
Voting Rights ◽  
Shareholder Wealth ◽  
Wealth Effects ◽  
Board Size ◽  
Content Type ◽  
Acquiring Firms

Purpose The purpose of this study is twofold: First, to assess the economic impact of Mergers and Acquisitions (M&As) on European acquiring firms from the beginning of the sixth merger wave onward. And second, to investigate the effect of CG mechanisms such as board size, voting rights and anti-takeover provisions (ATPs) on acquirers’ gains, along with a set of control variables. Design/methodology/approach For the purpose of the study, the authors use a sample of 349 completed M&As across all business sectors between European firms from 01/01/2003 to 31/12/2017. Abnormal returns are estimated by applying an event study methodology, and the effects of CG mechanisms are assessed with univariate and multivariate cross-sectional regressions. Findings The authors present evidence that acquirers realize significant positive excess returns upon the announcement of M&As. The authors find past profitability to be a strong indicator of value creation, while most of the traditional firm-specific and deal variables fail to interpret the results. The authors’ analysis indicates that the examined CG measures have a significant effect on acquirer’s gains. More specifically, the authors find that boards in excess of eight directors are negatively related to announcement-period abnormal returns. In contrast, the wealth effects for acquiring firms are positively related to shareholders’ voting rights and/or to the number of ATPs. The estimated coefficients of all three CG mechanisms are statistically significant across alternative model specifications. Research limitations/implications A clear implication is that the existence of certain CG mechanisms leads to value-enhancing strategic decisions for European acquirers. In terms of policy direction, the authors’ findings assist practitioners and/or national and transnational institutions in perceiving the efficacy of certain CG practices. Practical implications This study indicates that Corporate Governance Statements (CGSs) fail to provide adequate information to investors to understand in-depth the CG mechanisms that companies apply. Thus, the authors recommend that CGSs should provide not only narrative information but also information that may generate value for shareholders and other stakeholders as well. Such information should be qualitative and/or quantitative in nature and be made available to market participants to support their decision-making. Originality/value To the authors knowledge, this is the first study that investigates the effect of CG on the economic impact of M&As for European acquirers, using three widely examined CG mechanisms, namely, the board size, the voting rights and the ATPs. The authors’ empirical findings form the basis for further examination of the linkage between M&As and CG, with the intention of establishing the appropriate CG framework that will ensure shareholder wealth creation. This line of research could produce new insights in the field, allowing investors and policymakers to appreciate the benefits of effective CG.

Abnormal Returns to Stockholders of Firms Acquired in Business Combinations and Leveraged Buyouts

1992 ◽  
Vol 7 (2) ◽  
pp. 231-239 ◽  
Author(s):  
Khalil M. Torabzadeh ◽  
William J. Bertin
Keyword(s):  
Potential Risk ◽  
Abnormal Returns ◽  
Leveraged Buyouts ◽  
Related Factors ◽  
Business Combinations ◽  
Target Firms ◽  
Public Firm ◽  
Business Combination ◽  
Financial Characteristics ◽  
Acquisition Announcements

This study analyzes the returns to target stockholders under business combinations and leveraged buyouts surrounding the acquisition announcements. After controlling for the effects of transaction-related factors and firm-specific financial characteristics, target firms in business combinations are found to capture significantly greater abnormal returns compared to their counterparts engaged in leveraged buyouts. The findings imply that the potential risk-adjusted economic gains of a business combination significantly exceed the potential risk-adjusted productive gains associated with restructuring a public firm into a private concern through a leveraged buyout.

scholarly journals Short- And Long-Term Wealth Gains From UK Takeovers: The Case Of The Financial Industry

2014 ◽  
Vol 30 (4) ◽  
pp. 1253 ◽  
Author(s):  
Sabri Boubaker ◽  
Taher Hamza
Keyword(s):  
Abnormal Returns ◽  
Wealth Effects ◽  
Financial Industry ◽  
Short Term ◽  
Long Run ◽  
Acquiring Firms ◽  
Short And Long Term ◽  
Long Term Performance ◽  
Term Performance

The present study analyzes the short- and long-term performance of UK financial acquiring firms by examining a sample of 40 takeovers over the period 19962007. In particular, it investigates i) the short- and long-term stock return performance of these acquiring firms and ii) the relation between their short-term abnormal return around the announcement date of takeovers and their long-term performance. The event study methodology shows that bidders experience significant short-term wealth destruction. In contrast, both the buy-and-hold abnormal returns and bidders portfolio return approaches indicate positive and significant wealth effects over the long run. Business cycle analysis shows that acquirers obtain significantly higher returns during downward financial market cycles. Furthermore, the results show that the market reaction to the bid announcement better predicts bidders long-term performance in the case of positive short-term abnormal returns.

Industry Effects On The Abnormal Returns To Acquiring Firms

2011 ◽  
Vol 10 (3) ◽  
pp. 10 ◽  
Author(s):  
Emery A. Trahan
Keyword(s):  
Cash Flow ◽  
Abnormal Returns ◽  
Empirical Support ◽  
Flow Theory ◽  
Shareholder Wealth ◽  
Free Cash Flow ◽  
Wealth Effects ◽  
Industry Effects ◽  
Acquiring Firms ◽  
Acquisition Rates

<span>Jensen (1988) sketches some empirical predictions of the shareholder wealth effects of acquisitions in various industries. This study examines the acquisition rates, wealth effects, and subsequent rates of restructuring associated with acquisitions in these and other industries. The results show that the industries discussed by Jensen experience higher rates of acquisitions and subsequent restructuring and more significant wealth effects than other industries. The signs of the wealth effects are also consistent with Jensens predictions. Overall the findings provide some empirical support for the free cash flow theory. More detailed tests will be useful.</span>

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