Protective governance choices and the value of acquisition activity

We examine the wealth creation for acquiring and target firms' shareholders to Canadian merger and acquisition announcements. We also investigate the potential determinants of the stock market reactions. Further, we explore the impact of these announcements on the gains of the target firms' rivals. Takeovers are beneficial to the shareholders of merging firms. However, we show that Canadian rival firms lose abnormal returns. JEL Classification: G34EFM Classification: 160

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“…The M&A activity is consistent with the overall M&A market as highlighted by Bauguess and Stegemoller (2008); Kau et al (2008).…”

Section: Other Determinantssupporting

confidence: 75%

Gains to Merging Firms and Their Rivals: Evidence from Canada

Filbien

Kooli

2011

SSRN Journal

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“…Bauguess and Stegemoller (2008) show that corporate governance characteristics affect the decision to acquire, providing evidence consistent with benefits to managerial initiative when managers are insulated from discipline, i.e., more value-increasing acquisitions. Data for the corporate governance variables are from RiskMetrics.…”

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confidence: 65%

“…11 Firms generating high levels of internal cashflows are less constrained in their investment policies, thus increasing the likelihood of an acquisition (Bauguess and Stegemoller 2008).…”

Section: Variablesmentioning

confidence: 99%

Do Risk-Taking Incentives Induce CEOs to Invest? New Evidence from Acquisitions

Croci

Petmezas

2013

SSRN Journal

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This paper examines the effect of risk-taking incentives on acquisition investments. We provide evidence that high vega CEOs are more likely to invest in acquisitions.Economically, an inter-quartile range change in vega translates into an approximately 6% enhancement in acquisition investments. Further, the association between risk-taking incentives and acquisition investments is generally not affected by several corporate governance mechanisms. Moreover, risk-taking incentives do not promote internal investments. Finally, bidders with high vega CEOs generate relatively larger acquisition announcement returns. Overall, the results are consistent with the theory that high risk-taking incentives induce CEOs to undertake investments. JEL Classification: G34; M12Keywords: Executive Compensation; Managerial Incentives; Risk-Taking; Mergers and Acquisitions *Ettore Croci is from the Department of Economics and Business Administration, Università Cattolica del Sacro Cuore, Milan, Italy, E-mail: ettore.croci@unicatt.it. Dimitris Petmezas is from Surrey Business School, University of Surrey, UK, E-mail: d.petmezas@surrey.ac.uk. We would like to thank George Alexandridis, Lorenzo Caprio, François Derrien, Alex Edmans, Mara Faccio, Miguel Ferreira, Andrey Golubov, Halit Gonenc, Paul Guest, Nikolaos Karampatsas, Christos Mavis, Alain Schatt and seminar participants at the University of Bologna, University of Bristol and University of Neuchâtel for helpful comments and suggestions. All remaining errors are our own.

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“…However, they do not examine the interaction of ATPs with excess cash. 5 The extant literature emphasizes the complementarity of various governance mechanisms such as takeover threats, monitoring by large shareholders, industry competition, independent boards, and managerial share ownership (Cremers and Nair 2005, Bauguess and Stegemoller 2008, Bertrand and Mullainathan 2003, Chi and Lee 2010, Kim and Lu, 2011. 6 Arguably, ATPs may lead to lower industry competition by deterring takeovers.…”

Section: Discussionmentioning

confidence: 99%

“…Bates et al (2008) report a mixed impact from ATPs in deterring takeover activities and note that the probability of becoming a target decreases for firms with classified boards, but some provisions, such as golden parachutes, even facilitate takeovers. Bauguess and Stegemoller (2008) examine the relation between ATPs and bidder announcement returns for S&P500 firms during 1994-2005 and find that ATPs are unrelated to bidder returns and conclude that ATPs do not encourage managers to undertake value-destroying acquisitions.…”

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confidence: 99%

Cash Holdings, Corporate Governance and Acquirer Returns

Ahn

Chung

2012

SSRN Journal

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Protective governance choices and the value of acquisition activity

Cited by 82 publications

References 53 publications

Gains to Merging Firms and Their Rivals: Evidence from Canada

Gains to Merging Firms and Their Rivals: Evidence from Canada

Do Risk-Taking Incentives Induce CEOs to Invest? New Evidence from Acquisitions

Cash Holdings, Corporate Governance and Acquirer Returns

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