Liquidity and Returns to Target Shareholders in the Market for Corporate Control: Evidence from the US Markets

Lee, Kaun Y.; Chung, Kee H.

doi:10.1111/jbfa.12010

Cited by 7 publications

(8 citation statements)

References 83 publications

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“…Similar to the existing findings of BLL and Lee and Chung (2013), squeeze-out targets in our sample register a statistically significant positive mean observed CAR of 14.54%. However, the mean target OACAR amounts to less than a quarter of that, registering 3.26%.…”

Section: Generated Cumulative Abnormal Returnssupporting

confidence: 90%

“…With respect to the parent stock's long-run liquidity improvement Δd P , existing empirical evidence on US mergers and tender offers supports a measurable effect. Lee and Chung (2013) indicate it is more profound in mergers rather than tender offers, with targets exhibiting a superior long-run liquidity upgrading to their bidders. In our theoretical analysis, acquirers' long-run illiquidity improvement d P can be a significant factor, as a multiplier of the full theoretical acquirer value in expression (4).…”

Section: Literature Review and Theoretical Formulation 21 Liquidity mentioning

confidence: 99%

“…Notably, the existing squeeze-out empirical literature (e.g. Bates et al 2006;Lee and Chung 2013) mostly ignores this important implied options adjustment in estimating target CAR. For the cross-sectional tests of CAR, Cowan's (1992) nonparametric sign test is conducted, as suggested by Maynes and Rumsey (1993), for interpreting the thin trading return adjustments.…”

Section: Generated Cumulative Abnormal Returnsmentioning

confidence: 99%

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Is stock liquidity transferred and upgraded in acquisitions? Evidence from liquidity synergies in US freeze-outs

Konstantaras

Sogiakas

2018

Ann Oper Res

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This paper investigates the value successful bidders generate from acquiring less liquid targets. This synergy is traced with both theoretical and empirical evidence from the squeeze-out stage of going private transactions, when bidders hold sizeable toeholds in target shares. By transferring their superior liquidity, acquirers can add value to the valuation of their toeholds in fully acquired target assets. We use a sample of US delisted targets from globally listed acquirers over 25 years, and, in line with our theoretical analysis, a nonlinear relation is evidenced between the expected added value from liquidity transfer and illiquidity differences. The adjustment of target market prices for the attached option to participate in the bid in a new stochastic volatility framework reveals that the bulk of deal-generated wealth depends on the offered option. Although the market penalizes the mean acquirer with negative abnormal returns, those with higher liquidity differences from their targets are suffering less because of their greater potential of liquidity transfer synergy. The analysis of the probability that the offered option gets in the money reveals that liquidity transfer acts as a catalyst for successfully concluding the deal and underlies underbidding.

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Section: Generated Cumulative Abnormal Returnssupporting

confidence: 90%

Section: Literature Review and Theoretical Formulation 21 Liquidity mentioning

confidence: 99%

Section: Generated Cumulative Abnormal Returnsmentioning

confidence: 99%

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Is stock liquidity transferred and upgraded in acquisitions? Evidence from liquidity synergies in US freeze-outs

Konstantaras

Sogiakas

2018

Ann Oper Res

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“…Glosten and Milgrom (1985) propose that the adverse selection component of the bid-ask spread reflects the degree of 'information asymmetry risk' perceived by the investor. Studies such as Welker (1995) and Lee and Chung (2013) show that firms with larger bid-ask spreads have higher levels of information asymmetry…”

Section: (Ii) Proxies For Information Asymmetrymentioning

confidence: 99%

Target Information Asymmetry and Acquisition Price

Cheng¹,

Li²,

Tong

2016

Business Fin & Account

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This study investigates the effects of target information asymmetry in a takeover transaction. We find that a target with more information asymmetry receives a larger bid premium from the acquirer. We examine the response of the acquirer's investors to the bid to clarify whether the larger bid premium is an overpayment by the acquirer. We observe that the acquirer's investors respond more positively to the acquisition of an opaque target, indicating that the market recognizes the acquirer's valuation of the opaque target and agrees with the offer price. Our results indicate that corporate takeovers help to resolve asymmetric information in the capital market.

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“… In a recent merger study by Lee and Chung (), target firms with poorer stock market liquidity are more likely to obtain liquidity improvement after a merger or tender offer. …”

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confidence: 99%

The Effect of Corporate Governance on Post Reverse Merger Survival

Kim

Lee

et al. 2015

Asia-Pac J of Fin Stud

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In this paper, we examine how firm financial conditions and governance characteristics affect reverse mergers' survival. Using a sample of reverse mergers that took place in the United States during the 1997-2009 period, we find that firms with better corporate governance are more likely to survive after a reverse merger. In particular, CEO ownership, staggered board dummy, and venture dummy have a positive association with reverse merger survival. We also show a concave relation between the average board tenure and the probability of reverse merger survival. In contrast, most of the firm characteristic variables have an insignificant relationship with reverse merger survival. Our results suggest that the survivability of reverse mergers relies more on the presumed value-enhancing governance characteristics than on the financial conditions of the merging firms.

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Liquidity and Returns to Target Shareholders in the Market for Corporate Control: Evidence from the US Markets

Cited by 7 publications

References 83 publications

Is stock liquidity transferred and upgraded in acquisitions? Evidence from liquidity synergies in US freeze-outs

Is stock liquidity transferred and upgraded in acquisitions? Evidence from liquidity synergies in US freeze-outs

Target Information Asymmetry and Acquisition Price

The Effect of Corporate Governance on Post Reverse Merger Survival

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