Guosong Xu is an Assistant Professor of Finance at Rotterdam School of Management at Erasmus University since September 2019.
Corporate Finance, Behavioral Finance
Department of Finance, RSM
Mandeville Building T08-50, Burgemeester Oudlaan 50
3062 PA Rotterdam
“She Is Mine”: Determinants and Value Effects of Early Announcements in Takeovers
Journal of Corporate Finance, 2018, with Nihat Aktas and Burcin Yurtoglu
Best AFFI 2017 Conference Paper; Media coverage: Les Echos
The Role of Internal M&A Teams in Takeovers
with Nihat Aktas, Audra Boone, Alexander Witkowski, and Burcin Yurtoglu
Conditionally accepted, Review of Finance
We survey the largest internal corporate M&A teams and find that these internal M&A functions shape merger outcomes. Teams create the most value in the deal origination and post-merger stages by directing transaction rationales, screening targets, and employing performance metrics to assess post-merger success. Team size and financial experience are negatively associated with announcement returns, while having a more formal structure improves deal performance. Latent M&A team factors explain approximately 57% of the acquirer fixed effects in announcement return regressions.
When firms are connected to Wall Street Journal (WSJ) reporters, they receive markedly more favorable news coverage upon an M&A event and better market reactions to these mergers. For identification, I instrument the connected coverage with the reporters’ turnover and find similar results. Furthermore, using Rupert Murdoch’s acquisition of the WSJ as an exogenous shock to journalistic independence, I show that firms previously connected to Mr. Murdoch receive better coverage and more positive stock returns after the ownership change.
Industry-peers’ earnings surprises announced just hours before the M&A announcements correlate with the acquirers’ M&A announcement return. Consistent with behavioral biases, a week after the M&A announcement, acquirers’ response to the earnings surprises disappears. While the acquirers’ stock misvaluation is transitory, other effects are not. We show that larger earnings surprises are related to increased bid competition, to higher premium revisions, and to more withdrawn M&As. These results indicate that trend-seeking and extrapolation could create material distortions in some M&A transactions.
We study how fiscal consolidation (austerity) shocks transmit across countries through multinationals’ internal networks of subsidiaries. Using a large multicountry subsidiary-level data set, we find that local business units cut capital investment in response to a foreign austerity shock. Three channels contribute to the propagation of these shocks: production linkages among subsidiaries, business confidence, and financial constraints. In the aggregate, domestic investment and employment decline with higher exposure to fiscal shocks originated abroad, suggesting that such spillover matters for overall economic activity.
Using exogenous implementations of anti-bribery laws cross 41 countries, I find that criminalizing acquirers for foreign bribery reduces aggregate cross-border M&A activities by approximately 30%, acquirers’ gains by over half, and bid premium by 10%. These effects are stronger for public transactions and for targets located in countries (industries) with a higher level of corruption. The findings support the efficient side-payment model, which predicts a positive relation between bribery and cross-border transaction value.
Investment under Uncertainty: Do Firm Boundaries Matter?
with Jingyuan Mo
We examine how firms’ vertical structure affects investment under output price uncertainty. Exploiting a unique industrial organization in the oil exploration and production industry, where certain producers vertically integrate into downstream segments, we find that these integrated producers cut investments significantly more than do standalone producers under exogenous oil price uncertainty shocks. This finding is consistent with a real option model of investment, where a higher level of capital irreversibility amplifies the uncertainty effects on actual investment.