Acquisitions driven by stock overvaluation: Are they good deals?

Fu, Fangjian; Lin, Leming; Officer, Micah S.

doi:10.1016/j.jfineco.2013.02.013

Cited by 217 publications

(71 citation statements)

References 37 publications

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“…For example, Enterprise Value/EBITDA is weakly negatively related to the likelihood for a deal to be club deal. This is consistent with extant evidence that PE sponsors collude in club deals to avoid competition for attractive targets (Officer et al, 2010; for related work, see also Fu et al, 2013;Officer, 2007;Officer et al, 2009). The cross-border dummy is negatively related to the probability for a target to be acquired in club LBO in both the full sample and non-US sub-sample.…”

Section: Club Lbossupporting

confidence: 85%

Cross-border LBOs

Cao

Cumming

Qian

et al. 2015

Journal of Banking & Finance

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a b s t r a c tWe examine cross-border private equity (PE) sponsored leveraged buyout (LBO) transactions in 43 countries in relation to creditor rights and other legal and institutional variables. Cross-border LBO investment is more common from strong creditor rights countries to weak creditor rights countries. Club deals are less common in countries with stronger creditor rights, and less common in cross-border LBOs. Premiums are lower in countries with stronger creditor rights, and among cross-border deals.

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Section: Club Lbossupporting

confidence: 85%

Cross-border LBOs

Cao

Cumming

Qian

et al. 2015

Journal of Banking & Finance

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“…In this section, we use two non-market based measures that have also been used in the literature for M&A quality: (1) post-acquisition change in ROA, ∆ROA, (Healy et al, 1992;Chen et al, 2007;Wang and Xie, 2009;Lin et al, 2011;Fu et al, 2013;Goodman et al, 2014), and (2) the probability of a post-acquisition goodwill impairment, Prob_GW_Impair (Doellman and Ryngaert, 2010;Gu and Lev, 2011;Goodman et al, 2014). The advantages of these measures are that they are not as susceptible to market biases and they represent ex post (as 22 Our results are robust if we define short-tenured auditor as the ones whose tenure is less than or equal to one year prior to deal announcement.…”

Section: Non-market Based Manda Quality Measuresmentioning

confidence: 99%

Common auditors in M&A transactions

Cai

Kim

Park

et al. 2016

Journal of Accounting and Economics

137

102

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We examine merger and acquisition (M&A) transactions in which the acquirer and the target share a common auditor. We predict that a common auditor can help merging firms reduce uncertainty throughout the acquisition process, which allows managers to more efficiently allocate their capital, resulting in higher quality M&As. Consistent with our prediction, we find that deals with common auditors have higher acquisition announcement returns than do non-common-auditor deals. Further, we find that the common-auditor effect is more pronounced for deals with greater pre-acquisition uncertainty and deals involving acquirers and targets that are audited by the same local office of the common auditor. We also find that there is an increased probability of an M&A for firms with a common auditor. Collectively, our evidence suggests that common auditors act as information intermediaries for merging firms, resulting in higher quality acquisitions. Highlights• We examine merger and acquisition (M&A) transactions in which the acquirer and the target share a common auditor. • A common auditor helps merging firms reduce uncertainty, resulting in higher quality M&As. • Deals with common auditors have higher acquisition announcement returns than do non-common-auditor deals. • The common-auditor effect is more pronounced for deals with greater preacquisition uncertainty. • The common-auditor effect is more pronounced for deals involving the same local office of the common auditor. JEL Classification G34; M41; M49We thank Michelle Hanlon (the editor), an anonymous referee,

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“…Dong et al (2006), Rhodes-Kropf et al (2005) and Shliefer et al (2003) present evidence that agent motivated takeover occurs when managers take advantage of high stock prices of their firms to buy other companies relatively cheaply. Fan et al (2013) show that for overvalued firms, takeovers profit the manager with higher compensation at the expense of shareholders in which there are no synergy gains for the firm and significant overpayment for the target. Weston, et al (1990) examine mergers and restructuring in the global oil industry in the 1990s.…”

Section: Literature Reviewmentioning

confidence: 97%

Corporate takeovers in the US oil and gas sector

Cox

2016

JEFS

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We examine corporate takeovers in the U.S. oil and gas sector from 1990 to 2008. We test the hypotheses that energy prices and reserves influence takeovers in the energy market for corporate control. We employ these methods: 1. capital asset pricing model, 2. regression analysis, and 3. Granger causality test. Our results show that oil reserves cause takeover deals and affect the value of the merger. High oil prices propel management to acquire oil firms as well as affect the target value. However, the reverse cause-effect mechanism occurs for natural gas prices. That is, takeover activity causes gas prices to decrease. Acquirers are motivated to purchase reserves; whereas, targets are disposed to sell based on energy prices. Hence, our findings imply that countries can consider policies, which address the motivations of the oil and gas industries to facilitate well-functioning takeover markets.

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Acquisitions driven by stock overvaluation: Are they good deals?

Abstract: 2016-12-23T18:49:38

Cited by 217 publications

References 37 publications

Cross-border LBOs

Cross-border LBOs

Common auditors in M&A transactions

Corporate takeovers in the US oil and gas sector

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