Implications of Data Screens on Merger and Acquisition Analysis: A Large Sample Study of Mergers and Acquisitions from 1992 to 2009

273

103

Managers often claim that target firms are financially constrained prior to being acquired and that these constraints are eased following the acquisition. Using a large sample of European acquisitions, we document that the level of cash that target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline, while investment increases following the acquisition. These effects are stronger in deals that are more likely to be associated with financing improvements. Our findings suggest that acquisitions relieve financial frictions in target firms, especially when the target firm is relatively small.

Section: Measuring Financial Constraints In Acquired Firmsmentioning

confidence: 99%

Do Acquisitions Relieve Target Firms’ Financial Constraints?

Erel¹,

Jang²,

Weisbach

2015

273

103

“…One recent study using a much more representative sample of mergers than is typical in merger studies is Netter, Stegemoller, and Wintoki (2011), whose primary focus, unlike ours, is on domestic mergers. These authors present evidence suggesting that filters that researchers commonly use in obtaining mergers and acquisitions data lead to samples containing a small subset of the entire mergers universe, usually oversampling larger transactions by publicly held companies.…”

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confidence: 99%

Determinants of Cross‐Border Mergers and Acquisitions

Erel¹,

Liao

Weisbach³

2012

656

436

The vast majority of cross-border mergers involve private firms outside of the United States. We analyze a sample of 56,978 cross-border mergers between 1990 and 2007. We find that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. Valuation appears to play a role in motivating mergers: firms in countries whose stock market has increased in value, whose currency has recently appreciated, and that have a relatively high market-to-book value tend to be purchasers, while firms from weaker-performing economies tend to be targets.

“…Mitchell and Mulherin () and Harford () analyze merger waves by public firms. Netter, Stegemoller, and Wintoki () show that when including small deals and private acquirers this pattern is much smoother than the pattern with only large and public deals. See Andrade, Mitchell, and Stafford () and Betton, Eckbo, and Thorburn () for two surveys on the overall merger market.…”

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confidence: 99%

“…Clustering of mergers by public firms in time and industry has been studied by Mitchell and Mulherin (), Mulherin and Boone (2001), Andrade, Mitchell, and Stafford (), and Harford (). Netter, Stegemoller, and Wintoki () examine a large sample of mergers that includes small deals and private acquirers, and find that these deals are smoother over time. Dittmar and Dittmar () and Rau and Stouraitis () show that corporate financing events including mergers come in waves.…”

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confidence: 99%

Private and Public Merger Waves

Maksimovic

Phillips

Yang

2013

212

We document that public firms participate more than private firms as buyers and sellers of assets in merger waves and their participation is affected more by credit spreads and aggregate market valuation. Public firm acquisitions realize higher gains in productivity, particularly for on-the-wave acquisitions and when the acquirer's stock is liquid and highly valued. Our results are not driven solely by public firms' better access to capital. Using productivity data from early in the firm's life, we find that better private firms subsequently select to become public. Initial size and productivity predict asset purchases and sales 10 and more years later.PRIOR RESEARCH ESTABLISHES THAT the market for corporate assets is procyclical. Mergers and acquisitions tend to cluster in time.1 However, what causes firms to participate in these waves, and whether acquisitions that occur on the waves lead to the same efficiency outcomes as mergers that occur off the waves, remain open questions. The extent to which private firms participate in merger waves and whether their participation is affected by similar demand and supply factors that affect public firms also remain unanswered. At one extreme, acquisition waves may occur because investment opportunities also occur in * Maksimovic and Yang are from the University of Maryland and Phillips is from the University of Southern California and NBER. This research was supported by NSF grant #0965328 and was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the Center for Economic Studies. We would like to thank the Editor (Cam Harvey), an anonymous referee, and an Associate Editor for many helpful comments. In addition we wish to thank JoseMiguel Gaspar, Jarrad Harford, David Robinson, and seminar participants at Florida State University, Norwegian School of Economics and Business Administration, UCLA, University of Paris Dauphine, IFN conference at Stockholm, York University, University of California at Riverside, University of Rochester, California Corporate Finance Conference, UCLA/USC Annual Conference, NBER Corporate Finance Group, UBC 2010 Summer Conference, University of Virginia, Washington University 2010 Corporate Finance Conference, and the WFA 2010 meetings. We also thank researchers at the Center for Economic Studies for their helpful comments, and Antonio Falato at the Federal Reserve for providing data on Commercial and Industrial (C&I) loan rates. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to ensure that no confidential data are revealed.1 Mitchell and Mulherin (1996) and Harford (2005) analyze merger waves by public firms. Netter, Stegemoller, and Wintoki (2011) show that when including small deals and private acquirers this pattern is much smoother than the pattern with only large and public deals. See Andrade, Mitchell, and Stafford (2001) and Betton, Eckbo, and Thorburn (2008) for two surveys o...