Corporate mergers, stockholder diversification, and changes in systematic risk

Chatterjee, Sayan; Lubatkin, Michael

doi:10.1002/smj.4250110402

Cited by 126 publications

(72 citation statements)

References 35 publications

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“…However, in a subsequent study on mergers, by controlling for the systematic risk of the target firm and correcting for potential heteroskedasticity, Chatterjee and Lubatkin (1990) found that related mergers induced a downwards shift in the systematic risk for related bidders; unrelated mergers appear to be effective at reducing stockholders risk. In general this stream in the literature has raised several interesting possibilities but defies a conclusive takeawaypotentially making it ripe for further work.…”

Section: Diversification and Market-based Measures Of Performancementioning

confidence: 98%

Redirecting Research Efforts on the Diversification–Performance Linkage: The Search for Synergy

Ahuja

Novelli

2017

ANNALS

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link AcknowledgmentsThe authors would like to thank the editors and reviewers for their very constructive and insightful comments through the review process. Elena Novelli also gratefully acknowledges the financial support of the ESRC Future Research Leaders Scheme (Grant ES/K001388/1) and Cass Business School. Gautam Ahuja would like to thank the University of Michigan for support. 2 AbstractWe review the literature on the diversification-performance (D-P) relationship to a) propose that the time is ripe for a renewed attack on understanding the relationship between diversification and firm performance, and b) outline a new approach to attacking the question.Our paper makes four main contributions. First, through a review of the literature we establish the inherent complexities in the D-P relationship and the methodological challenges confronted by the literature in reaching its current conclusion of a non-linear relationship between diversification and performance. Second, we argue that to better guide managers the literature needs to develop along a complementary path -whereas past research has often focused on answering the big question of does diversification affect firm performance, this second path would focus more on identifying the precise micro-mechanisms through which diversification adds or subtracts value. Third, we outline a new approach to the investigation of this topic, based on (a) identifying the precise underlying mechanisms through which diversification affects performance; (b) identifying performance outcomes that are "proximate" to the mechanism that the researcher is studying, and (c) identifying an appropriate research design that can enable a causal claim. Finally, we outline a set of directions for future research.3

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Section: Diversification and Market-based Measures Of Performancementioning

confidence: 98%

Redirecting Research Efforts on the Diversification–Performance Linkage: The Search for Synergy

Ahuja

Novelli

2017

ANNALS

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“…This argument, however, was originally intended for security managers, not corporate managers (Chatterjee and Lubatkin, 1992). Action by corporate managers may alter the underlying systematic risk profiles of their portfolio of business (Chatterjee and Lubatkin, 1990;Helfat and Teece, 1987;Peavy, 1984;Salter and Weinhold, 1979). Thus, while mortality risk may not be hedgeable in financial markets, but it may be reduced or eliminated by some insurers through reinsurance, natural hedging, and, we propose, mortality swaps.…”

Section: Empirical Support For Natural Hedgingmentioning

confidence: 99%

Natural Hedging of Life and Annuity Mortality Risks

Cox

Lin

2007

North American Actuarial Journal

187

119

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ABSTRACT. The values of life insurance and annuity liabilities move in opposite directions in response to a change in the underlying mortality. Natural hedging utilizes this to stabilize aggregate liability cash flows. We find empirical evidence that suggests that annuity writing insurers who use natural hedging also charge lower premiums than otherwise similar insurers. This indicates that insurers who are able to utilize natural hedging have a competitive advantage. In addition, we show how a mortality swap might be used to provide the benefits of natural hedging.

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“…Bradley Desai, and Kim (1988) argue that the acquirer can redeploy the combined assets of both firms in such a way that enhance its value in the post-acquisition period. Moreover, strategic management studies consider product market motives to expect synergistic gains to the acquirer firms (see, e.g., Chatterjee and Lubatkin, 1990, and reference therein). For example, cost reductions due to the economics of scale, the economics of scope, more diverse corporate skills and enhanced market power, among others.…”

Section: Acquirer Volatilitymentioning

confidence: 99%

Anticipating Corporate Takeovers and the Method of Payment: A Variance-Covariance Non-Stationarity Approach

Irani

2014

SSRN Journal

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The previous literature mainly assumes that the mergers and acquisitions (M&As) and their payment-forms are unpredictable prior to the first bid announcement day. Using a sample of 125 completed acquisitions between U.S. public firms from 2003 to 2006, I find that a bid offer is anticipated on average 187 trading days before the announcement day in 86% of deals. The market also anticipates the payment-form in 62% of deals. It takes on average three months for the market to pinpoint the most likely payment-form of the anticipated deals. Moreover, the announcement of Cash (Mixed and Equity) offers contains the least (most) unexpected information for the market. This paper introduces an empirical time series solution to identify the anticipation dates, i.e. non-stationarity in the variance-covariance structure of the joint target and acquirer daily return series. I hypothesize that the variancecovariance of the joint price process can shift during the pre-announcement period in response to anticipating a potential M&A deal and its payment-form. The empirical identification of the proposed solution is also investigated by testing for existence of similar anticipation shifts in a benchmark sample, i.e., a random sample of non-M&A firms. Similar shifts occur much less frequent in the benchmark sample compared to the M&A sample, indicating that the likely mechanism for observing those shifts is the M&A and paymentform anticipations.

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Corporate mergers, stockholder diversification, and changes in systematic risk

Cited by 126 publications

References 35 publications

Redirecting Research Efforts on the Diversification–Performance Linkage: The Search for Synergy

Redirecting Research Efforts on the Diversification–Performance Linkage: The Search for Synergy

Natural Hedging of Life and Annuity Mortality Risks

Anticipating Corporate Takeovers and the Method of Payment: A Variance-Covariance Non-Stationarity Approach

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