Essays on corporate takeovers

This thesis consists of four chapters on corporate takeovers and mergers and acquisitions (M&As). The first chapter compiles the evidence on M&A success or failure to identify what variables determine the success of a takeover in terms of long-run shareholder returns and firm performance. The second chapter investigates how cross-country differences in creditor protection affect bond performance around cross-border deal announcements. It shows that bond returns are highly sensitive to the strength and enforcement of creditor protection, as bondholders of bidding firms respond more positively to deals where the target is located in a country with stronger creditor rights or more efficient claims enforcement through courts. The third chapter considers how an acquirer’s investment in its relations with employees affects the value creation process in domestic and cross-border M&As. It shows that whereas an acquirer’s investment in employee relations is positively related to shareholder value and firm performance when acquiring domestically, this effect is reversed when acquiring a foreign target. These results are mainly driven by the provision of monetary incentives such as a bonus plan or health insurance benefits, but the negative effect in cross-border deals is reduced when the acquirer has acquisition experience in the target’s country, or when the social security laws in the target’s county are relatively weak. The last chapter investigates how acquiring a minority stake in a target firm before committing to a majority stake affects the takeover process in terms of bid premiums, shareholder returns, and post-deal performance. Based on a global sample and a US-focused sample, it finds that two-stage acquisitions are less affected by information asymmetries and that they mitigate pre-emptive overbidding by deterring rival firms from making competing offers

Leveraged Buyouts:A Survey of the Literature

This paper provides an exhaustive literature review of the motives for public-to-private LBO transactions. First, the paper develops the theoretical framework for the potential sources of value creation from going private: a distinction is made between the reduction in agency costs, stakeholder wealth transfers, tax benefits, transaction costs savings, takeover defense strategies, and corporate undervaluation. The paper then reviews and summarizes whether and how these theories have been empirically verified in the four different strands of literature in LBO research. These strands of literature are categorized by phase in the LBO transaction: Intent (of a buyout), Impact (of the LBO on the various stakeholders), Process (of restructuring after the leveraged buyout) and Duration (of retaining the private status). Then, the paper shows that in the first half of the 2000s, a public-to-private LBO wave re-emerged in the US, UK and Continental Europe, whose value vastly exceeded that of the 1980s US LBO wave. Finally, the paper provides suggestions for further research

Cross-Border Acquisitions and Employee-Engagement

We provide novel evidence that a firm’s engagement in employee-related issues explains part of the value difference between its domestic and cross-border takeovers. An acquirer’s investment in employee relations is positively related to the firm’s performance when acquiring domestically, but labor-related frictions reverse this effect when acquiring a foreign target. The results cannot be explained by country-level labor regulation but are consistent with the notion that labor-related frictions exist that prohibit firms from efficiently transforming monetary incentives in higher shareholder value when acquiring a foreign target firm

Corporate Employee-Engagement and Merger Outcomes

Extending the theories of employee incentives and inalienability of human capital, we investigate the link between a firm’s engagement in employee issues and the returns to shareholders around mergers and acquisitions (M&As) and analyze an international sample of 4,565 M&A deals from 48 countries. We find that stronger employee-engagement—especially in terms of monetary benefits—by the acquiring firm is positively related to shareholder returns in domestic deals, but this positive effect is attenuated in cross-border deals, whereas workforce diversity, training and development, or health and safety do not affect shareholder value. The attenuating effect of cross-border deals is stronger when uncertainty about post-merger labor integration is higher and when economic nationalism in the target’s country is stronger, consistent with an explanation based on the inalienability of human capital and employment policies. Moreover, we find that most effects of employee-engagement on shareholder returns are driven by the acquirer rather than the target, and that they persist in the long run post-merger

Cross-border acquisitions and employment policies

Using novel firm-level data on employment quality in an international sample of M&A deals, this paper investigates the cost-benefit trade-off faced by acquirers when providing generous employment policies. We find that shareholders react more positively to deal announcements by acquirers providing generous employee incentives when the deal is domestic, but negatively when the deal is cross-border. These effects are primarily driven by the provision of monetary incentives and are strongest for firms in skilled industries. We argue that generous employment policies increase synergy gains and reduce labor adjustment costs in a domestic takeover. In cross-border deals, however, costs associated with managing employee policies across borders and lack of opportunities for eliminating work duplication negatively affect acquirer returns. Nevertheless, we find that country-specific acquisition experience can mitigate these negative effects. Our results cannot be explained by country-level labor regulations or by target-level employment policies

Cross-Border Acquisitions and Employee-Engagement

We provide novel evidence that a firm’s engagement in employee-related issues explains part of the value difference between its domestic and cross-border takeovers. An acquirer’s investment in employee relations is positively related to the firm’s performance when acquiring domestically, but labor-related frictions reverse this effect when acquiring a foreign target. The results cannot be explained by country-level labor regulation but are consistent with the notion that labor-related frictions exist that prohibit firms from efficiently transforming monetary incentives in higher shareholder value when acquiring a foreign target firm

Failure and success in mergers and acquisitions

This paper provides an overview of the academic literature on the market for corporate control, and focuses specifically on firms' performance around and after a takeover. Despite the aggregate M&A market amounting to several trillions USD on an annual basis, acquiring firms often underperform relative to non-acquiring firms, especially in public takeovers. Although hundreds of academic studies have investigated the deal- and firm-level factors associated with M&A announcement returns, short-run returns are often not sustained in the long run. Moreover, the wide variety of performance measures and heterogeneity in sample sizes complicates the drawing of accurate and unambiguous conclusions. In this light, our survey compiles the recent literature and aims to identify the areas of research for which short-run returns predict (or fail to predict) long-run performance. We find that post-takeover deal performance is affected by key determinants including serial acquisitions, CEO overconfidence, acquirer-target relatedness and complementarity, and shareholder intervention in the form of voting or activism