“She Is Mine”: Determinants and Value Effects of Early Announcements in Takeovers
Journal of Corporate Finance, 2018, 50, with Nihat Aktas and Burcin Yurtoglu
Best AFFI 2017 Conference Paper; Media coverage: Les Echos
Some M&A bids are voluntarily disclosed by the bidders prior to the signature of a definitive agreement to signal high synergies to target shareholders and to improve success rates. These early announced transactions are also associated with higher offer premium, completion rates, and public competition.
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.
Presentations: EFA (Doctoral Tutorial), Helsinki Finance Summit, Paris December Finance Meeting
The Role of Internal M&A Teams in Takeovers
with Nihat Aktas, Audra Boone, Alexander Witkowski, and Burcin Yurtoglu
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.
Industry-peers’ earnings surprises announced just hours before the M&A announcements correlate with the acquirers’ M&A announcement return, but a week later, these acquirers exhibit a stock price reversal and their response to the earnings surprises disappears. We cannot reconcile these findings with rational Bayesian updating, information transmission, or strategic timing theories. The evidence that salient events affect investors’ M&A valuations, supports behavioral theories predicting asset pricing distortions due to cognitive biases.
Presentations: ASSA Atlanta, Research of Behavioral Finance Conference
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.
Presentations: FMA Europe
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.