The effects of family control, blockholder activism, board structures and deal characteristics on acquisition performance

This study examines the announcement effects and long-run stock performance for acquirers from years 2000 to 2013. Since acquisitions create agency problem and companies in Malaysia exhibit concentrated ownership structures, this study aims to investigate four major objectives which consist of the effects of family control, blockholder activism, board structures and deal characteristics on stock performance of acquirers. In addressing these objectives, abnormal returns from three-day before through one-day after the announcements as well as abnormal returns over a 36-months period are adopted as the proxy for the announcement effects and long-run stock performance respectively. Ordinary least squares regression methods are used to examine the effects of the 16 factors on abnormal returns. The results show that acquisitions in Malaysia are value-enhancing, which is consistent with synergistic theory. Furthermore, family ownership and active institutional blockholders are able to create value which implies that family-controlled firms do not engage in opportunistic behaviour. However, passive institutional blockholders and fairness opinion lead to lower value which indicates that these factors are unable to mitigate conflict of interest between majority and minority shareholders. As for the long run performance, Malaysia market can be considered as efficient, as most of the analyses show that the performance of acquirers do not differ from those of the matching firms. The findings imply that managers of family-controlled firms do not have to worry about investors penalizing them, as long as they engage in valuecreating acquisitions. Moreover, institutional blockholders should play an active role if they want to protect their investments. Finally, investors have to realize that over the long run, there is no trading strategy that could be adopted to earn abnormal profit

Boyan Jovanovic and Peter L. Rousseau

We model merger waves as reallocation waves, and argue that mergers spread new technology in a way that is similar to that of entry and exit of firms. We focus on two periods: 1890-1930 during which electricity and the internal combustion engine spread through the U.S. economy, and 1971-2001—the Information Age

The Effect of Targets’ Organizational Capital on Acquirers’ Abnormal Returns

Literature has shown that organizational capital is an important production factor and is positively related with firm value, Tobin’s Q, stock returns and executive compensation. We examine whether this organizational capital functions well in another firm in a merger. Results show that acquirers experience higher announcement abnormal returns when the targets have higher organizational capital and this effect strengthens in non-diversifying acquisitions and when acquirers have better corporate governance

An Empirical Analysis of the Relationship Between Inequality and Innovation in a Schumpeterian Framework

I empirically investigate the non-linear relationship between inequality and innovation in a Schumpeterian setup where growth is expressed by the rate of innovations. In this framework income distribution plays a role in determining the dynamic market sizes for innovators and therefore is a major determinant of growth. By using two new cross-country inequality data sets, I find support for an inverted U-shaped relationship between inequality and innovative activities. This result is robust to two common inequality definitions and several parametric and non-parametric estimation procedures.inequality, innovation, patents

The Value of Intangible Capital and its Components in Mergers

In a large sample of U.S. domestic M&As over 1993-2014, we examine whether the market perceives transfer of intangible capital in mergers to be value enhancing. We find that acquirer announcement-period abnormal returns are significantly higher in acquisitions where acquirers have relatively lower intangible capital than targets. This supports the hypothesis that value is created for acquirer shareholders in the mergers involving intangible capital transfer from targets to bidders. Further, we find that the greater the target’s intangible assets relative to those of the acquirer’s, the higher the synergy created by an acquisition. This indicates that acquisitions by firms with relatively lower intangible capital generate higher total gains

Boyan Jovanovic and Peter L. Rousseau

We model merger waves as reallocation waves, and argue that mergers spread new technology in a way that is similar to that of entry and exit of firms. We focus on two periods: 1890-1930 during which electricity and the internal combustion engine spread through the U.S. economy, and 1971-2001—the Information Age

An Empirical Analysis of the Relationship Between Inequality and Innovation in a Schumpeterian Framework

I empirically investigate the non-linear relationship between inequality and innovation in a Schumpeterian setup where growth is expressed by the rate of innovations. In this framework income distribution plays a role in determining the dynamic market sizes for innovators and therefore is a major determinant of growth. By using two new cross-country inequality data sets, I find support for an inverted U-shaped relationship between inequality and innovative activities. This result is robust to two common inequality definitions and several parametric and non-parametric estimation procedures

The Persistence of Differences in Productivity, Wages, Skill Mixes and Profits Between Firms

In this paper, we construct a dynamic assignment model that can provide a unified explanation of several observed features of persistent differences in productivity, wages, skill mixes and profits between firms. Large organization capital (high firm-specific knowledge) attracts skilled workers, who can create further organization capital in the future. This positive feedback brings about persistent differences in these variables. We also analyze how the real and perceived values of a firm's organization capital interactively influence persistence. We estimate parameters and simulate the model. Our results show that a positive assignment mechanism accounts for a large part of the observed persistence.Organization Capital, Assignment, Persistence