The Effects of the Method of Payment and the Type of Offer on Target Returns in Mergers and Tender Offers

Suk, David Y.; Sung, Hyun Mo

doi:10.1111/j.1540-6288.1997.tb00440.x

Cited by 11 publications

(4 citation statements)

References 11 publications

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“…They found that the abnormal return of bidding firms on the announcement day were -1.3% for stock exchange and -0.8% for cash offers. Suk and Sung (1997) looked at the effects of method of payment, form of acquisition and type of offer on target firms' abnormal returns around the takeover announcement. They showed that there was no difference in premiums between a stock offers and a cash offers.…”

Section: Introductionmentioning

confidence: 99%

The Effects of Merger and Acquisition Announcements on the Security Prices of Bidding Firms and Target Firms in Asia

Wong¹,

Cheung²

2009

IJEF

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With the rise of the Asian financial crisis in 1997 and the smash of IT bubbles in 2000, there has been an increase in the number of corporate takeovers and mergers. In light of these events, we investigate the effects of acquisition announcements on the pricing behavior of the Asian bidding and target firms using the data of mergers or acquisitions announcements from the Bloomberg Database and Reuters Business Database fpr Hong Kong, China, Taiwan, Singapore, South Korea and Japan over the period from 1 January 2000 to 31 December 2007. Our result indicates that information concerning a forthcoming corporate takeover is considered good news for the shareholders of bidding firms but not regarded as good news for the shareholders of the target firms. In addition, we confirm the hypothesis that the abnormal return for the shareholders of bidding firms during the post-announcement period depends on the type of acquisition.

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Section: Introductionmentioning

confidence: 99%

The Effects of Merger and Acquisition Announcements on the Security Prices of Bidding Firms and Target Firms in Asia

Wong¹,

Cheung²

2009

IJEF

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“…Method of payment is extensively studied in the M&A literature. Jensen and Ruback (1983), Huang and Walkling (1987), and Suk and Sung (1997) find that target firms earn significantly higher abnormal returns in cash offers than in stock offers. On the contrary, Leeth and Borg (2000) find lower target firm gains from cash offers than stock offers by examining the 1920s merger wave.…”

Section: Hypothesesmentioning

confidence: 98%

Trading costs around M&A announcements

Mai

2012

International Journal of Managerial Finance

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PurposeThe purpose of this paper is to examine trading costs of both acquiring firms and target firms differentiated by method of payment, mode of acquisition, and deal attitude around merger and acquisition (M&A) announcements. The author calculates four spread measures of trading costs: quoted spread, percentage quoted spread, effective spread, and percentage effective spread.Design/methodology/approachDifferences in spreads differentiated by M&A characteristics are calculated and two‐sample t‐tests applied. A linear regression model is developed to test whether changes in trading costs are related to acquiring firm's post‐merger price performance. The regression is estimated by OLS method.FindingsIt is found that various methods of payment affect the spreads of target firm differently on certain days around M&A announcement. For acquiring firms, significant differences are found in spreads between cash offers and stock offers, and between stock offers and mix offers. Significant difference was not found in spreads between cash offers and mix offers. The mode of acquisition affects the bid‐ask spreads of target firms only, but not those of acquiring firms. Deal attitudes affect the spreads of target firms on and after M&A announcements. It was also found that all four spread measures are significantly linked to acquiring firms’ post‐merger daily returns.Research limitations/implicationsFurther study can be done on mechanisms through which M&A characteristics impact trading costs.Practical implicationsThis study suggests that M&A characteristics affect firms’ spreads and that changes in spreads need to be accounted for in explaining acquiring firms’ post‐merger daily returns.Originality/valueThe paper fills in an important gap in existing literature by examining trading costs of acquiring firms around M&A announcements. It provides additional evidence on the anomaly of acquiring firm's negative post‐merger returns. The paper is intended to help improve the understanding of trading costs and the behavior of the market participants in response to a major corporate event.

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“…If the method of payment is regarded as a reflection of the acquiring managers' views of the stand-alone value of their own company (Draper and Paudyal, 1999), then a stock offer may also carry an 'information effect' (Suk and Sung, 1997), signalling to the market that the bidding firm believes its own stock to be overvalued, or is uncertain as to the potential synergies arising from the merger. Under this signalling theory, a share bid alerts investors to pre-existing mispricing and therefore causes a share price reaction to correct misvaluation.…”

Section: Earnings Management and Bid-announcement Returnsmentioning

confidence: 99%

Acquirers’ earnings management ahead of stock-for-stock bids in ‘hot’ and ‘cold’ markets

Botsari

Meeks

2018

Journal of Accounting and Public Policy

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The accounting literature has found evidence that acquirers in stock-for-stock M&A have typically managed earnings upwards ahead of a bid. Other literatures have concluded that, when stock prices are high and rising, M&A is higher, more M&A is financed with stock, market sentiment and stockholders' perceptions of information appear to change, and in these circumstances new (arbitrage) motivations for M&A emerge. This paper revisits earnings management ahead of M&A in the light of these findings, comparing experience in 'hot' and 'cold' markets. It finds that such earnings management is more pronounced in hot markets; that only in such markets are positive discretionary accruals commonly associated with positive abnormal returns on the announcement of earnings; and that in such markets-against the expectations from signalling theory-these positive returns are not reversed on announcement of a stockfor-stock bid. The results suggest that the economic benefits achieved by engaging in earnings management during hot markets are indeed significant: in hot markets, we estimate that on average share acquirers engage in working capital accrual management equivalent to over a third of the average acquirer's return on total assets in that year; and that this earnings management is associated with increases in market value which are statistically and economically significant, enabling the bidder to secure control of the target with fewer shares.

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The Effects of the Method of Payment and the Type of Offer on Target Returns in Mergers and Tender Offers

Cited by 11 publications

References 11 publications

The Effects of Merger and Acquisition Announcements on the Security Prices of Bidding Firms and Target Firms in Asia

The Effects of Merger and Acquisition Announcements on the Security Prices of Bidding Firms and Target Firms in Asia

Trading costs around M&A announcements

Acquirers’ earnings management ahead of stock-for-stock bids in ‘hot’ and ‘cold’ markets

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