Acquisitions of private targets: the unique shareholder wealth implications

Acquisitions of privately-held targets provide unique shareholder wealth implications which prior studies have not addressed. This study provides a comparative analysis of private versus public target takeovers, including differences in merger motivations, method of payment inferences, shareholder wealth effects, and the factors driving these wealth changes. The results show that acquirer wealth gains in private target takeovers exceed those in public target takeovers, with large private targets being the key contributors to wealth gains. Acquirer gains do not appear to come at the expense of private target gains. These findings highlight the importance of target ownership in influencing the shareholder wealth changes in takeovers.

The risk and return characteristics of developed and emerging stock markets: the recent evidence

Finance theory suggests that the higher volatility typically associated with emerging stock market returns translates into higher expected returns in those markets. This study compares the risk and return profile of emerging and developed stock markets over the period from 1988 through April 2003. Specifically, this study investigates whether a difference in risk characteristics exists between the two markets and whether the realized rates of return in these two types of markets reflect these risk characteristics. The results show that the risk associated with emerging markets, as measured by the standard deviation of returns, is higher than the risk in developed markets in most periods. Also, the returns in emerging markets have been higher than those in developed markets for most of the time frames examined. The findings suggest that risk-averse investors seeking higher returns in emerging markets have been compensated for assuming the higher risk associated with these markets.

Private placements of common equity and the industry rival response

This study examines the intra-industry signalling effects of private equity issue announcements. The results show that the average industry reaction to a private equity announcement is negative. However, evidence of a contagion effect also exists. Specifically, the competitive response among industry rivals is significantly stronger for private equity issues during bear stock markets. In fact, the industry rival reaction for nonhigh-tech firms is significantly negative during bear markets only, while it is significantly positive during bull markets. These findings highlight the importance of stock market conditions in influencing the signals sent by private equity issues and the resulting shareholder wealth effects.

Earnings management practices among growth and value firms

This research examines the earnings management practices of growth versus value firms. We predict that growth firms have more incentive to 'manage their earnings' and that they do so more aggressively as compared to value firms. The primary reason for this behaviour is that information asymmetries are more severe for growth firms. Using a sample of firms over the period from 1997 through 2001, this study finds that growth firms tend to manage their earnings upward and downward more aggressively than value firms. These results are robust to using different components of discretionary total accruals as a measure for earnings management and after controlling for other factors.

The Choice of IPO versus Takeover: Empirical Evidence

We examine factors that influence the choice between an initial public offering (IPO) and a takeover by a public acquirer. Our results show that the industry concentration, high-tech industry affiliation, current cost of debt, relative "hotness" of the IPO market, firm size, and insider ownership percentage are all positively related to the probability of an IPO. In contrast, private companies in high market-to-book industries, financial service sectors, highly leveraged industries, and deals involving greater liquidity for selling insiders show a stronger likelihood for takeovers. Our findings also indicate that a liquidity discount exists in takeovers relative to IPOs.