The Motivation for Takeovers in the UK

Hodgkinson, Lynn; Partington, Graham

doi:10.1111/j.1468-5957.2007.02063.x

Cited by 23 publications

(19 citation statements)

References 34 publications

(48 reference statements)

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“…Furthermore, some studies find a negative impact on share returns for the acquirer firm (Barnes, 1984;Franks and Harris, 1989;Conn et al, 2005) whereas others find a positive impact (Hodgkinson and Partington, 2008).…”

Section: Related Literature and Hypotheses Developmentmentioning

confidence: 99%

Accrual and real-based earnings management by UK acquirers

Kassamany

Ibrahim

Archbold

2017

JAOC

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Methodology: Mean and median accrual and real-based manipulation are examined in the period before the announcement of a merger and acquisition. These are compared across stock and cash acquirers as well as before and after the implementation of the Higgs recommendations. We also run logistic regressions to examine accrual and realbased manipulation across stock and cash acquirers after controlling for variables that may impact the acquisition type. Findings:We find some evidence of upward pre-merger accrual-based earnings management by stock-financed acquirers, which is in line with the findings of Botsari and Meeks (2008). Furthermore, we do not find significant changes in the post-Higgs period which indicates that the recommendations put forth by Higgs may not have been successful in mitigating earnings management. Our evidence also shows that cash bidders engage in pre-merger real earnings manipulation through lower discretionary expenses, possibly to enhance cash availability for the bid. 2Practical implications: The findings in this study confirm earnings management exists around mergers and acquisitions and provide some evidence that the recommendations set out in the Higgs Report do not appear to have mitigated earnings management activities. This is of interest to regulators as well as investors and academicians.Originality: This provides the first analysis in the UK examining the use of real-based earnings management activities by UK acquirers. It also extends prior research around corporate governance changes that occurred in the UK. IntroductionEarnings management has been extensively examined through a stream of research that considers firms involved in specific corporate events (such as seasoned equity offerings, initial public offerings and management buyouts). This study extends prior results on earnings management in mergers and acquisitions (hereafter M&As) that engage in either cash or stock bids; and examines the prevalence of accrual and real-based earnings management in this context. Furthermore, we examine whether regulatory changes in the UK following the Higgs (2003) report have an impact on earnings management in this context.Though prior research has examined accrual-based manipulation in the M&A context in the US (such as Erickson and Wang, 1999; Louis, 2004) in the UK (Botsari and Meeks, 2008), and in the Asia-pacific region (Ardekani et al., 2012;Higgins, 2013;Jeong and Bae, 2013), only limited studies have extended its scope to examine whether acquiring firms engage in the manipulation of real activities (e.g. Zhang, 2015). Therefore, a comprehensive study that considers both accrual and real-based earnings management practices is needed to contribute to earnings management research in the UK M&A context. Furthermore, fundamental changes to governance codes around the world have occurred over the past few years. For example, the enactment of the Sarbanes-Oxley Act in the US; the UK Corporate Governance Code in the UK based on the recommendations set out in the Higgs Report (2003)...

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Section: Related Literature and Hypotheses Developmentmentioning

confidence: 99%

Accrual and real-based earnings management by UK acquirers

Kassamany

Ibrahim

Archbold

2017

JAOC

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“…Commensurate with the rising trends of mergers and acquisitions are a number of studies investigating the merger phenomenon. However, it is important to point out that merger studies in finance have been concentrated in two areas: (i) studies that examine the theories and motivation for M&As (see Steiner, 1975;Sharma and Ho, 2002;Hodgkinson and Partington, 2007); and (ii) studies that investigate the wealth gains of the acquirer and target firms using event study methodology (Conn and Connell, 1990;Mathur et al, 1994;Aw and Chatterjee, 2004;Gregory and McCorriston, 2005). Prior literature indicates that studies analysing the relationship between macroeconomic factors and mergers and acquisitions have approached the topic from two methodological standpoints.…”

Section: Introductionmentioning

confidence: 99%

An Analysis of the Inward Cross-Border Mergers and Acquisitions in the U.K.: A Macroeconomic Perspective

Boateng

Naraidoo

Uddin

2011

Journal of International Financial Management &Amp; Accounting

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Most of the growth in international production over the past decade has been carried out via cross-border mergers and acquisitions. Yet previous empirical work relating to CBM&As has been confined to firm-specific factors. This is against the backdrop that researchers have not been able to develop a coherent theory explaining the increasing trends of CBM&As activity. Building on prior studies, this study attempts to extend the few existing studies by using a simple empirical nonlinear framework to analyse the number of cross-border mergers and acquisitions inflows between 1987 and 2008 into the UK from a macroeconomic perspective. The main findings are that the response of the inflow is asymmetric as there is more persistence during stock market booms versus recessions. There are asymmetries with respect to relative prices suggesting that an improvement in the terms of trade leads to higher inflows once the growth of stock prices is above a threshold level of 8%. Other factors which have significant bearing on CBM&As inflows are the rate of inflation and growth in real GDP.

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“…Conversely a more recent study by Hodgkinson and Partington (2008) finds long standing acquirer shareholders gained wealth, by securing their shares six months prior to takeover and held onto the share for twenty-four months after takeover completion. However Sudarsanam and Mahate (2003) sampled 519 UK listed acquirers from 1983 to 1995 and found acquirer shareholders experienced wealth loss over a longer event from announcement to three years post acquisition.…”

Section: Contributionmentioning

confidence: 83%

The Impact of Single and Multiple Mergers and Acquisitions on Shareholders’ Wealth of UK Bidder Firms

Giannopoulos¹,

Khansalar²,

Patel³

2017

IJEF

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This study investigates the impact of takeover announcements on UK acquirer shareholders" wealth during the period 2002-2006. More specifically, it is investigated whether the impact of single acquirers on shareholders" wealth is significantly different from the impact of multiple acquirers. Findings suggest that acquirer shareholders experience positive abnormal returns during the announcement period. Moreover, the results indicate single acquirers consistently outperform multiple acquirers when testing for deal characteristics such as: payment method (cash or equity), target status (public or private), target location (domestic or cross-border) and industry relatedness (specification or diversification). Performance declines with sequential acquisitions due to merger programme announcement hypothesis. Successful first time acquirers suffer from hubris whilst unsuccessful first time acquirers learn from their experiences suggested by the organisation learning hypothesis but go on to suffer from hubris. Acquisitions of private firms yield significant abnormal returns whereas public acquisitions reduce the value of UK acquirers. The effect of cash and equity, domestic and foreign, related and unrelated takeovers are inconclusive for the short-term windows investigated by this study.

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The Motivation for Takeovers in the UK

Cited by 23 publications

References 34 publications

Accrual and real-based earnings management by UK acquirers

Accrual and real-based earnings management by UK acquirers

An Analysis of the Inward Cross-Border Mergers and Acquisitions in the U.K.: A Macroeconomic Perspective

The Impact of Single and Multiple Mergers and Acquisitions on Shareholders’ Wealth of UK Bidder Firms

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