31 research outputs found

    Home biased? : A spatial analysis of the domestic merging behavior of US firms

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    Using data of US domestic mergers and acquisitions transactions, this paper shows that acquirers have a preference for geographically proximate target companies. We measure the ‘home bias’ against benchmark portfolios of hypothetical deals where the potential targets consist of firms of similar size in the same four-digit SIC code that have been targets in other transactions at about the same time or firms that have been listed at a stock exchange at that time. There is a strong and consistent home bias for M&A transactions in the US, which is significantly declining during the observation period, i.e. between 1990 and 2004. At the same time, the average distances between target and acquirer increase articulately. The home bias is stronger for small and relatively opaque target companies suggesting that local information is the decisive factor in explaining the results. Acquirers that diversify into new business lines also display a stronger preference for more proximate targets. With an event study we show that investors react relatively better to proximate acquisitions than to distant ones. That reaction is more important and becomes significant in times when the average distance between target and acquirer becomes larger, but never becomes economically significant. We interpret this as evidence for the familiarity hypothesis brought forward by Huberman (2001): Acquirers know about the existence of proximate targets and are more likely to merge with them without necessarily being better informed. However, when comparing the best and the worst deals, we are able to show a dramatic difference in distances and home bias: The most successful deals display on average a much stronger home bias and distinctively smaller distance between acquirer and target than the least successful deals. Proximity in M&A transactions therefore is a necessary but not sufficient condition for success. The paper contributes to the growing literature on the role of distance in financial decisions

    It's the market power, stupid! Stock return patterns in international bank M&A

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    This paper analyzes capital market reactions to international bank M&A. We investigate combined stock return patterns of targets, bidders, and their peers upon takeover announcement, and closing or withdrawal. We distinguish five common M&A hypotheses and relate characteristic and mutually exclusive abnormal stock return patterns to each hypothesis. We find that investors believe in gains through the exploitation of market power by the post-merger entity. In a multinomial logistic model we show that patterns related to market power significantly concur with large relative target size, intra-industry mergers, and increasing market concentration, suggesting a substantial lessening of competition through M&A. --M&A,Banks,Event Study,Peer Returns,Market Power

    Europe integrates less than you think: Evidence from the market for corporate control in Europe and the US

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    National borders are still strong barriers for mergers and acquisitions in Europe. We estimate a gravity equation model based on NUTS 2-regions and find that the restraining impact of national borders decreased by about a third between 1990 and 2007. However, there has been no significant change since 1997, i.e., two years before the introduction of the Euro. To benchmark our results we run a corresponding analysis within the United States using the ten federal OMB regions as country equivalents. The 'quasi border'-effect in the US is weaker than in the EU and even declines more during the same time period. We conclude that European integration policy has little effect on fostering cross-border transactions. --European integration,corporate control,border effects

    Private Equity Portfolio Company Fees

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    In private equity, General Partners (GPs) may receive fee payments from companies whose board they control. This paper describes the related contracts and shows that these fee payments sum up to $20 billion evenly distributed over the last twenty years, representing over 6% of the equity invested by GPs on behalf of their investors. Fees do not vary according to business cycles, company characteristics, or GP performance. Fees vary significantly across GPs and are persistent within GPs. GPs charging the least raised more capital post financial crisis. GPs that went public distinctively increased their fees prior to that event. We discuss how results can be explained by optimal contracting versus tunneling theories

    Embedded Interests and the Managerial Local State: Methanol Fuel-Switching in China

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    The Innovative Performance of China's National Innovation System

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    Bank M&A: A Market Power Story?

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    This paper analyzes capital market reactions to international bank M&A. We investigate the combined stock return patterns of targets, bidders, and their peers upon takeover announcement, and closing or withdrawal. We distinguish five common M&A hypotheses and relate characteristic and mutually exclusive abnormal stock return patterns to each hypothesis. The findings show that there are more investors who believe in gains through the exploitation of market power by the post-merger entity than investors who believe in any of the other motives tested in the paper. In a multinomial logistic model we show that patterns related to market power significantly concur with large relative target size, intra-industry mergers, and increasing market concentration, suggesting a substantial lessening of competition through M&A

    Private Equity Portfolio Company Fees

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    In private equity, General Partners (GPs) receive fee payments from companies whose boards they control. Fees amount to $20 billion evenly distributed over time, representing over 6% of equity invested by GPs. They do not vary with business cycles, company characteristics, or GP performance. Fees vary significantly across GPs and are persistent within GPs, even after accounting for fee rebates to LPs. GPs charging the least raise more capital post financial crisis and are backed by more skilled LPs. GPs increase fees prior to going public. We discuss how these results could be explained by optimal contracting and tax arbitrage

    Private Equity Shareholder Activism

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    This paper analyzes the degree and type of private equity firm activism in portfolio companies. Using hand-collected data on 211 private equity investments over the period 1997-2009, we are able to distinguish between different kinds of activism of private equity firms such as board and management reorganizations, balance sheet restructurings or the utilization of private equity firm industry-specific skills. We additionally differentiate between “good” activism which is economic value adding, or “evil” activism which is purely earnings management-driven. Our results show that both buyout and venture capital firms invest with varying degrees and types of activism. We also find that earnings management is a pivotal part of an active investment strategy, both for buyouts and venture deals. The choice for pursuing active or passive strategies depends on the respective buyout and venture firms’ overall business models. However, the PE firms also adjust their investment styles in accordance with the specifics of each single portfolio firm. Activism also has a positive long-term effect on stock performance relative to firms backed by passive private equity investors
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