Managerial and Disciplinary Responses to Abandoned Acquisitions in Bidding Firms: A New Perspective

Abstract

Manuscript Type: Empirical Research Question/Issue: Existing research suggests that internal and external corporate governance mechanisms substitute for one another to mitigate agency problems in bidding firms. This paper tests whether the interaction between these mechanisms is more complementary. Research Findings/Insights: While there is evidence for disciplinary responses to bids for unrelated targets involving strategic retrenchment and significant asset divestment, the influence of the information conveyed by this characteristic on the likelihood of post-abandonment discipline is not amplified when boards are less independent. Theoretical/Academic Implications: The results suggest that certain characteristics are used to distinguish between abandoned bidders which require discipline and those that do not. However, our findings do not suggest that interaction between internal and external governance mechanisms is contingent on board independence. Instead, these interactions between shareholders and boards seem to be contingent on a range of company, industry, and situation-specific factors. Practitioner/Policy Implications: While policy in the UK has focused on board independence as a means of effective corporate governance, our results suggest that this is not a panacea. Effective governance involves active owners, communicating their interests to boards, and boards responding accordingly. Further encouragement of such communication before, during, and after acquisitions will improve signals to managers that shareholders can target the necessary discipline of those whom they perceive to need it most.

The evolution of corporate governance and agency control: the effectiveness of mechanisms in creating value for companies with IPO on the Brazilian stock exchange

“…Interactions like those proposed here can be found in McCann and Ackrill (2015) works and Guo et al (2015). Even so, the findings, as mentioned earlier, may make sense for developed or emerging countries with different legal systems than the Brazilian system.…”

Deal completion in mergers and acquisitions: past accomplishment and future direction

“…Finally, there is evidence to suggest that target firms of failed bids are more likely to be acquired over the next eight years (Malmendier et al ., 2016). Also, McCann and Ackrill (2015) find that firms abandoning a bid regarding unrelated target firms have a higher likelihood of changing their strategies related to non-core activities of the firm.…”

“…Further, targets of failed deals are more likely to be acquired following the deal failure (Malmendier et al ., 2016). It is important to understand the implications for deal completion or abandonment on the future strategies and performance of the firms (McCann and Ackrill, 2015; Weber and Camerer, 2003). Another underexplored area relates to the micro-level aspects post-deal completion especially related to turnover and restructuring of the firm.…”

The causes and consequences of delayed/abandoned cross-border merger & acquisition transactions

“…Caiazza and Pozzolo, 2016; Ngo and Susnjara, 2016; Muehlfeld et al , 2012). Although a large amount of research has published on why M&A fail to create value to shareholders (announcement returns) and fail to improve accounting performance (post-merger stage) in corporate finance and strategy literatures (Asquith, 1983; Chang and Suk, 1998; De Bernardis and Giustiniano, 2015; McCann and Ackrill, 2015; Munjal and Pereira, 2015; also see reviews by Ferreira et al , 2014b; Haleblian et al , 2009; Lebedev et al , 2015; Marks and Mirvis, 2011; Martynova and Renneboog, 2008; Reddy, 2014; Shimizu et al , 2004; Yaghoubi et al , 2016), there are hardly a few empirical/survey studies that analyze abandoned deals or completion likelihood of M&A negotiations (Dikova et al , 2010; Graebner et al , 2010; Muehlfeld et al , 2007, 2012; Ngo and Susnjara, 2016; Roos and Postma, 2016; Zhang et al , 2011). In fact, some recent literature-review papers have confirmed the scant research in this particular stream – negotiation process (Ahammad et al , 2016; Caiazza and Volpe, 2015; Friedman et al , 2015; Lee et al , 2014).…”