| Peer-Reviewed

To Switch or Not to Switch: Evidence from Multiple U. S. Acquirers

Received: 21 March 2016     Accepted: 10 April 2016     Published: 10 May 2016
Views:       Downloads:
Abstract

With a comprehensive U.S. domestic sample, we study shareholder announcement returns for firms that acquired 5 or more public, private, and/or subsidiary targets, and switched or shifted from in-state to out-of-state acquisition, and vice versa, from a deal conducted in different state to one completed in their own state. Generally, switching has a negative effect on bidder announcement returns (-3.424): switch-deals have significantly lower CARs than non-switch deals: 1.251% against 2.876. Shifting states has a more pronounced negative impact in later deals, and when the switch is from same to different state.

Published in International Journal of Finance and Banking Research (Volume 2, Issue 3)
DOI 10.11648/j.ijfbr.20160203.11
Page(s) 49-62
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Multiple acquisitions, Merger announcement returns, In-state and out-of-state takeovers

References
[1] Agrawal, A., Jaffe, J. & Mandelker, G. (1992). The Post Merger Performance of Acquiring Firms: A Re-Examination of An Anomaly, The Journal of Finance, vol. XLVII, Sep. 1992, pp. 1605 - 1621
[2] Aktas, N., de Bodt, E., & Roll, R. (2009). Learning, hubris and corporate serial acquisitions. Journal of Corporate Finance, 15(5), 543–561. doi:10.1016/j.jcorpfin.2009.01.006
[3] Aktas, N., de Bodt, E., & Roll, R. (2011). Serial acquirer bidding: An empirical test of the learning hypothesis. Journal of Corporate Finance, 17(1), 18–32. doi:10.1016/j.jcorpfin.2010.07.002
[4] Anand, J., & Singh, H. (1997). Asset redeployment, acquisitions and corporate strategy in declining industries. Strategic Management Journal, 18, 99–118. doi:Article
[5] Asquith, P., Bruner, R. F., & Mullins, D. W. (1983). The gains to bidding firms from merger. Journal of Financial Economics, 11(1), 121–139. doi:10.1016/0304-405X(83)90007-7
[6] Asquith, P., & Kim, E. H. (1982). The Impact of Merger Bids on the Participating Firms’ Security Holders. Journal of Finance, 37, 1209–1228. doi:10.1111/j.1540-6261.1982.tb03613.x
[7] Audretsch, D. B., & Feldman, M. P. (1996). R&D spillovers and the geography of innovation and production, American Economic Review 86, 630–640.
[8] Bens, D., Goodman, T., Neamtiu, M., (2012). Does investment-related pressure lead to misreporting? An analysis of reporting following M&A transactions. The Accounting Review 87, 839 – 865.
[9] Berkovitch, E., & Narayanan, M. P. (1993). Motives for takeovers: An empirical investigation. doi:10.2307/2331418
[10] Billett, M. T., & Qian, Y. (2008). Are Overconfident CEOs Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers. Management Science, 54(6), 1037–1051. doi:10.1287/mnsc.1070.0830
[11] Bradley, M., Desai, A., & Kim, E. H. (1988). Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. Journal of Financial Economics, 21, 3–40. doi:10.1016/0304-405X(88)90030-X
[12] Bruner, R. F. (2001). Does M&A Pay? A Survey of Evidence for the Decision-Maker. Journal of Applied Finance, 12, 48. doi:10.2469/dig.v33.n1.1205
[13] Chatterjee, R., & Meeks, G. (1996). The financial effects of takeover: Accounting rates of return and accounting regulation. Journal of Business Finance and Accounting, 23, 851–868. doi:10.1111/j.1468-5957.1996.tb01155.x
[14] Cording, M., Christmann, P., & Bourgeois, L. J. (2002). A Focus on Resources in M & A Success : A Literature Review and Research Agenda to Resolve Two Paradoxes, 40.
[15] Coval, J. D., & Moskowitz T., J. (1999). Home bias at home: Local equity preference in domestic portfolios, Journal of Finance 54, 2045–2073.
[16] Croci, E. & Petmezas, D. (2009) Why Do Managers Make Serial Acquisitions? An Investigation of Performance Predictability in Serial Acquisitions.
[17] Available at SSRN: http://ssrn.com/abstract=727503 or http://dx.doi.org/10.2139/ssrn.727503
[18] Datta, D. K., Pinches, G. E., & Narayanan, V. K. (1992). FACTORS INFLUENCING WEALTH CREATION FROM MERGERS AND ACQUISITIONS: A META-ANALYSIS. Strategic Management Journal, 13, 67–84. doi:10.1002/smj.4250130106
[19] Dong, M., Hirshleifer, D., Richardson, S., & Teoh, S. H. (2006). Does investor misvaluation drive the takeover market? Journal of Finance, 61(2), 725–762. doi:10.1111/j.1540-6261.2006.00853.x
[20] Erickson, M., Heitzman, S., & Zhang, X. F. (2012). The effect of financial misreporting on corporate mergers and acquisitions.
[21] Erickson, M., & Wang, S. (1999). Earnings management by acquiring firms in stock for stock mergers. Journal of Accounting and Economics, 27, 149–176. doi:10.1016/S0165-4101(99)00008-7
[22] Firth, M. (1980). Takeovers, Shareholder Returns, and the Theory of the Firm. The Quarterly Journal of Economics, 94, 235. doi:10.1111/j.1540-5915.1990.tb01250.x
[23] Fuller, K., Netter, J. M., & Stegemoller, M. (2002). What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions. The Journal of Finance, 67(4), 1763–1793. doi:10.1111/1540-6261.00477
[24] Gong, G., Louis, H., & Sun, A. X. (2008). Earnings management, lawsuits, and stock-for-stock acquirers’ market performance. Journal of Accounting and Economics, 46(1), 62–77. doi:10.1016/j.jacceco.2008.03.001
[25] Guest, P. M., Cosh, A., Hughes, A., & Conn, R. L. (2004). Why Must All Good Things Come To an End? the Performance of Multiple Acquirers. Academy of Management Proceedings, (February), S1–S6. doi:10.5465/AMBPP.2004.13863814
[26] Gugler, K., Mueller, D. C., Yurtoglu, B. B., & Zulehner, C. (2003). The effects of mergers: An international comparison. International Journal of Industrial Organization, 21, 625–653. doi:10.1016/S0167-7187(02)00107-8
[27] Haleblian, J., & Finkelstein, S. (1999). The influence of organizational acquisition experience on acquisition performance: A behavioral learning perspective. Administrative Science Quarterly, 44(1), 29–56. doi:10.2307/2667030
[28] Halpern, P. (1983). Corporate Acquisitions: A Theory of Special Cases? A Review of Event Studies Applied to Acquisitions. The Journal of Finance, 38, 297. doi:10.2307/2327962
[29] Hansen, R. G., & Lott, J. R. (1996). Externalities and Corporate Objectives in a World with Diversified Shareholder/Consumers. Journal of Financial and Quantitative Analysis, 31, 43–68. doi:10.2307/2331386
[30] Harvey P. (2000). Cisco’s secret for success. Red Herring 6 March: 36–37.
[31] Hayward, M. L. A. (2002). When do firms learn from their acquisition experience? Evidence from 1990-1995. Strategic Management Journal, 23(1), 21–39. doi:10.1002/smj.207
[32] Healy, P. M., Palepu, K. G., & Ruback, R. S. (1992). Does corporate performance improve after mergers? Journal of Financial Economics. doi:10.1016/0304-405X(92)90002-F
[33] Huber, G. P. (1991). Organizational Learning: The Contributing Processes and the Literatures. Organization Science, 2(1), 88–115. doi:10.1287/orsc.2.1.88
[34] Ismail, A. (2008). Which acquirers gain more, single or multiple? Recent evidence from the USA market. Global Finance Journal, 19(1), 72–84. doi:10.1016/j.gfj.2008.01.002
[35] Ivkovic, Z. & Weisbenner S., J. (2005) Local does as local is: Information content of the geography of individual investors’ common stock investments, Journal of Finance 60, 267–306.
[36] Jensen, M. C. (1986). Agency Costs of Free Cash Flow , Corporate Finance , and Takeovers Agency Costs of Free Cash Flow , Corporate Finance , and Takeovers. American Economic Review, 76(2), 323–329. doi:10.2139/ssrn.99580
[37] Jensen, M. C., & Meckling, W. H. (1976). THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE Michael C. JENSEN and William H. MECKLING•. Journal of Financial Economics, 3, 305–360.
[38] Kang, J. K., & Kim, J. M. (2008). The geography of block acquisitions. Journal of Finance, 63(6), 2817–2858. doi:10.1111/j.1540-6261.2008.01414.x
[39] Kaplan, S. N., & Weisbach, M. S. (1992). The Success of Acquisitions: Evidence from Divestitures. Journal of Finance, 47, 107–138. doi:10.2307/2329092
[40] Kedia, S., & Philippon, T. (2009). The economics of fraudulent accounting. Review of Financial Studies, 22(6), 2169–2199. doi:10.1093/rfs/hhm016
[41] Kengelbach, J., Klemmer, D., & Schwetzler, B. (2011). An Anatomy of Serial Acquirers, M&A Learning, and the Role of Post-Merger Integration. doi:10.2139/ssrn.1946261
[42] Kravet, T., Myers, L. A., Sanchez, J. M., & Scholz, S. (2012). Do Financial Statement Misstatements Facilitate Corporate Acquisitions? Papers.ssrn.com, 806–834. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2029953
[43] Lang, L. H. P., & Stulz, R. M. (1994). Tobin’s q, Corporate Diversification, and Firm Performance. Journal of Political Economy, 102(6), 1248–1280. doi:10.2307/2138786
[44] Langer, E. J., & Roth, J. (1975). Heads I win, tails it’s chance: The illusion of control as a function of the sequence of outcomes in a purely chance task. Journal of Personality and Social Psychology, 32(6), 951–955. doi:10.1037/0022-3514.32.6.951
[45] Leeth, J. D. & Borg, J., R. (1994). The Impact of Mergers on Acquiring Firm Shareholder Wealth: The 1905-1930 Experience. Empirica, 21, 1994: 221 - 244.
[46] Leeth, J. D., & Borg, J. R. (2000). The Impact of Takeovers on Shareholder Wealth during the 1920s Merger Wave. The Journal of Financial and Quantitative Analysis, 35, 217. doi:10.2307/2676191
[47] Lehn, K. M., & Zhao, M. (2006). CEO turnover after acquisitions: Are bad bidders fired? Journal of Finance, 61(4), 1759–1811. doi:10.1111/j.1540-6261.2006.00889.x
[48] Levinthal and March. (1993). The Myopia of Learning. Strategic Management Journal, 95–112. doi:10.1017/CBO9781107415324.004
[49] Levitt, B., & March, J. G. (1988). Organizational Learning. Annual Review of Sociology, 14(1), 319–338. doi:10.1146/annurev.so.14.080188.001535
[50] Loderer, C., & Martin, K. (1990). Corporate Acquisitions by Listed Firms: The Experience of a Comprehensive Sample. Financial Management, 19(4), 17–33. doi:10.2307/3665607
[51] Louis, H. (2004). Earnings management and the market performance of acquiring firms. Journal of Financial Economics, 74(1), 121–148. doi:10.1016/j.jfineco.2003.08.004
[52] Malatesta, P. H. (1983). The wealth effect of merger activity and the objective functions of merging firms. Journal of Financial Economics. doi:10.1016/0304-405X(83)90009-0
[53] Malatesta, P. H., & Thompson, R. (1985). Partially anticipated events: A model of stock price reactions with an application to corporate acquisitions. Journal of Financial Economics, 14(2), 237–250. doi:10.1016/0304-405X(85)90016-9
[54] Malloy, C., (2005). The geography of equity analysis, Journal of Finance 60, 719–755.
[55] Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. Journal of Finance, 60(6), 2661–2700. doi:10.1111/j.1540-6261.2005.00813.x
[56] Mitchell, M. L., & Lehn, K. (1990). Do Bad Bidders Become Good Targets? Journal of Political Economy, 98(2), 372. doi:10.1086/261682
[57] Rahahleh, N., & Wei, P. P. (2012). The performance of frequent acquirers: Evidence from emerging markets. Global Finance Journal, 23(1), 16–33. doi:10.1016/j.gfj.2012.01.002
[58] Roll, R. (1986). The Hubris Hypothesis of Corporate Takeovers. The Journal of Business. doi:10.1086/296325
[59] Rovit, S., Harding, D., & Lemire, C. (2003). Turning Deal Smarts into M&A Payoffs: frequent buyers usually score the best deals, provided that they add skills in each transaction. Merger and Acquisitions: The Dealmakers Journal (09/01/03)
[60] Salter, M. S., & Weinhold, W. A. (1978). Diversification via acquisition: Creating value. Harvard Business Review, 56, 166–176. doi:Article
[61] Schipper, K., & Thompson, R. (1983). Evidence on the Capitalized Value of Merger Activity for Acquiring Firms. Journal of Financial Economics, 11(1-4), 85–119. doi:10.1016/0304-405X(83)90006-5
[62] Servaes, H. (1991). Tobin’s Q and the Gains from Takeovers. The Journal of Finance, 46, 409–419. doi:10.2307/2328702
[63] Shrivastava, P. (1986). Postmerger Integration. Journal of Business Strategy, 7(1), 65–76. doi:10.1108/eb039143
[64] Szulanski, G. (2000). Appropriability and the Challenge of Scope: Banc One Routinizes Replication. Nature & Dynamics of Organizational Capabilities, 69. doi:10.1093/0199248540.001.0001
[65] Zhu, N. (2002). the Local Bias of Individual Investors. SSRN Electronic Journal, (02). doi:10.2139/ssrn.302620
Cite This Article
  • APA Style

    Vanya Stefanova Petrova. (2016). To Switch or Not to Switch: Evidence from Multiple U. S. Acquirers. International Journal of Finance and Banking Research, 2(3), 49-62. https://doi.org/10.11648/j.ijfbr.20160203.11

    Copy | Download

    ACS Style

    Vanya Stefanova Petrova. To Switch or Not to Switch: Evidence from Multiple U. S. Acquirers. Int. J. Finance Bank. Res. 2016, 2(3), 49-62. doi: 10.11648/j.ijfbr.20160203.11

    Copy | Download

    AMA Style

    Vanya Stefanova Petrova. To Switch or Not to Switch: Evidence from Multiple U. S. Acquirers. Int J Finance Bank Res. 2016;2(3):49-62. doi: 10.11648/j.ijfbr.20160203.11

    Copy | Download

  • @article{10.11648/j.ijfbr.20160203.11,
      author = {Vanya Stefanova Petrova},
      title = {To Switch or Not to Switch: Evidence from Multiple U. S. Acquirers},
      journal = {International Journal of Finance and Banking Research},
      volume = {2},
      number = {3},
      pages = {49-62},
      doi = {10.11648/j.ijfbr.20160203.11},
      url = {https://doi.org/10.11648/j.ijfbr.20160203.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20160203.11},
      abstract = {With a comprehensive U.S. domestic sample, we study shareholder announcement returns for firms that acquired 5 or more public, private, and/or subsidiary targets, and  switched or shifted from in-state to out-of-state acquisition, and vice versa, from a deal conducted in different state to one completed in their own state. Generally, switching has a negative effect on bidder announcement returns (-3.424): switch-deals have significantly lower CARs than non-switch deals: 1.251% against 2.876. Shifting states has a more pronounced negative impact in later deals, and when the switch is from same to different state.},
     year = {2016}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - To Switch or Not to Switch: Evidence from Multiple U. S. Acquirers
    AU  - Vanya Stefanova Petrova
    Y1  - 2016/05/10
    PY  - 2016
    N1  - https://doi.org/10.11648/j.ijfbr.20160203.11
    DO  - 10.11648/j.ijfbr.20160203.11
    T2  - International Journal of Finance and Banking Research
    JF  - International Journal of Finance and Banking Research
    JO  - International Journal of Finance and Banking Research
    SP  - 49
    EP  - 62
    PB  - Science Publishing Group
    SN  - 2472-2278
    UR  - https://doi.org/10.11648/j.ijfbr.20160203.11
    AB  - With a comprehensive U.S. domestic sample, we study shareholder announcement returns for firms that acquired 5 or more public, private, and/or subsidiary targets, and  switched or shifted from in-state to out-of-state acquisition, and vice versa, from a deal conducted in different state to one completed in their own state. Generally, switching has a negative effect on bidder announcement returns (-3.424): switch-deals have significantly lower CARs than non-switch deals: 1.251% against 2.876. Shifting states has a more pronounced negative impact in later deals, and when the switch is from same to different state.
    VL  - 2
    IS  - 3
    ER  - 

    Copy | Download

Author Information
  • School of Finance, Shanghai University of Finance and Economics, Shanghai, P. R. China

  • Sections