Managerial Ownership, the Method of Payment for Acquisitions, and Executive Job Retention

Ghosh, Aloke; Ruland, William

doi:10.1111/0022-1082.325125

Cited by 136 publications

(85 citation statements)

References 21 publications

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“…The RETAIN coefficient is positive and significant in the comparison between stock and cash, which reinforces the earlier evidence that stock is more likely to be used rather than cash when the private owners are hired by the bidder firm or placed on the bidder's board of directors. A similar result is found for takeovers of publicly-traded targets by Ghosh and Ruland (1998). The RETAIN variable is not significant in the comparision between stock and combo.…”

Section: Univariate Comparisons Between Takeovers Of Different Paymensupporting

confidence: 77%

“…They may be more willing to accept stock when they are retained as managers or board members of the combined entity. Ghosh and Ruland (1998) find that managers of the target firm are more likely to retain jobs when the takeover is paid with stock instead of cash.…”

Section: Effect Of the Sarbanes-oxley Actmentioning

confidence: 93%

“…The use of stock as a payment medium can create new blockholders, threatening the existing control positions of the bidders' big shareholders. Therefore, bidders with more concentrated ownership tend to use cash to protect the controlling power (Stulz 1988;Amihud et al 1990;Jung et al 1996;Martin 1996;Ghosh and Ruland 1998;Faccio and Masulis 2005). While most previous studies focus on the relation between the bidding firm's ownership concentration and the choice of payment medium among takeovers of public targets, the relation is expected to be much more pronounced among takeovers of privatelyheld targets.…”

Section: Effect Of the Sarbanes-oxley Actmentioning

confidence: 99%

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Determinants of the medium of payment used to acquire privately-held targets

Madura

Ngo²

2010

J Econ Finan

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Since private firms have a unique ownership structure, the method of payment decision when acquiring private firms is influenced by a different set of factors than the method of payment decision when acquiring public firms. We find that bidders are more likely to pay for private targets with stock when the capital gain tax rate is relatively high. This relationship is attributed to greater tax benefits to private owners who receive stock in periods when the capital gains tax is high. Bidders are more likely to use stock in takeovers when the targets are high-tech firms, which we attribute to protection against overpayment by using a contingent pricing method. Bidders are more likely to use cash in takeovers since the Sarbanes-Oxley Act, which we attribute to the higher level of due diligence by bidder managers and board members, and therefore a reduced need for contingent pricing methods like stock. Overall, the results suggest the likelihood of using stock to acquire private targets is positively related to the information asymmetry between the parties, while the likelihood of using cash is greater when conditions (such as SOX) reduce the information asymmetry.

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Section: Univariate Comparisons Between Takeovers Of Different Paymensupporting

confidence: 77%

Section: Effect Of the Sarbanes-oxley Actmentioning

confidence: 93%

Section: Effect Of the Sarbanes-oxley Actmentioning

confidence: 99%

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Determinants of the medium of payment used to acquire privately-held targets

Madura

Ngo²

2010

J Econ Finan

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“…Most of the time, it is the preferences of bidding firm managers and target firm managers who have the controlling rights that determine the form of payment in an acquisition. (see Ghosh and Ruland (1998)). 1 positive and significant gains from a successful takeover.…”

Section: Introductionmentioning

confidence: 96%

The Effects of Merger and Acquisition Announcements on the Security Prices of Bidding Firms and Target Firms in Asia

Wong¹,

Cheung²

2009

IJEF

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With the rise of the Asian financial crisis in 1997 and the smash of IT bubbles in 2000, there has been an increase in the number of corporate takeovers and mergers. In light of these events, we investigate the effects of acquisition announcements on the pricing behavior of the Asian bidding and target firms using the data of mergers or acquisitions announcements from the Bloomberg Database and Reuters Business Database fpr Hong Kong, China, Taiwan, Singapore, South Korea and Japan over the period from 1 January 2000 to 31 December 2007. Our result indicates that information concerning a forthcoming corporate takeover is considered good news for the shareholders of bidding firms but not regarded as good news for the shareholders of the target firms. In addition, we confirm the hypothesis that the abnormal return for the shareholders of bidding firms during the post-announcement period depends on the type of acquisition.

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“…Third, managers and other shareholders that own a significant share of the target firm may want to retain control over the resulting firm and therefore prefer stock payment (Ghosh and Ruland, 1998). Baker et al (2007) argue that individual investors are inert and hence more willing than institutional shareholders to accept acquirer stock as a form of payment.…”

Section: Other Control Variablesmentioning

confidence: 99%

Acquisition Finance and Market Timing

Vermaelen

Groen-Xu

2013

SSRN Journal

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Bidders have an incentive to pay with stock when their shares are overvalued, but target firms should be reluctant to accept such overvalued payment. In a sample of 2,978 acquisitions, we find that stock payment is readily accepted only when the bidder can justify the financing decision in terms of such economic fundamentals as optimal capital structure. Yet even when the fundamentals justify stock payment, paying with cash is common. In that way, firms can preclude paying with undervalued stock and are more likely to experience positive long-term excess returns. JEL: G14, G34

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Managerial Ownership, the Method of Payment for Acquisitions, and Executive Job Retention

Cited by 136 publications

References 21 publications

Determinants of the medium of payment used to acquire privately-held targets

Determinants of the medium of payment used to acquire privately-held targets

The Effects of Merger and Acquisition Announcements on the Security Prices of Bidding Firms and Target Firms in Asia

Acquisition Finance and Market Timing

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