Market Misreaction? Evidence from Cross-Border Acquisitions

Krishnan, C. N. V.; Wu, Jialun

doi:10.3390/jrfm15020093

Cited by 5 publications

(4 citation statements)

References 60 publications

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“…However, a high capital ratio is significantly and positively associated with post-acquisition performance. Overall, the univariate and the multivariate results imply that the market misreacts to both banks and non-banks making merger and acquisition announcements based on acquirer capital ratio (or the inverse of leverage) as at the time of the announcement, but in opposite directions (also see (Krishnan and Wu 2022), for another example of market misreaction).…”

Section: Discussion Of Results and Conclusionmentioning

confidence: 85%

Market Misreaction? Leverage and Mergers and Acquisitions

Krishnan

Yakimenko

2022

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Using a large database of U.S. mergers and acquisitions (M&As) announced from 2010 through 2017, we examine the effects of capital ratio (leverage) on the announcement period stock price reaction as well as on longer-term stock returns and performance, for banks, making comparisons with non-banks. We compare announcement period reactions (computed in different ways) for lower (lower than sample median) capitalized banks and non-banks with that for higher capitalized banks and non-banks. We confirm our results using multivariate analyses—after controlling for year and industry fixed effects—and we check the associations of capital ratio with announcement period abnormal returns, longer-term performance, as well as certain bank-specific and non-bank specific performance measures. For banks, we find that a lower capital ratio of acquirers at the time of the announcement of the M&A is significantly associated with negative announcement period abnormal returns. However, for these banks, the longer-run abnormal returns and performance are positive. The opposite is true for non-bank M&A announcements: higher equity ratios (lower leverage) of acquirers as at the time of the announcement is significantly associated with negative announcement period abnormal returns. Yet, for such non-banks, the longer-run abnormal returns and performance are positive. This shows that the market may misreact, on average, to both bank and non-bank M&A announcements based on the acquirer’s leverage at the time of the announcement.

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Section: Discussion Of Results and Conclusionmentioning

confidence: 85%

Market Misreaction? Leverage and Mergers and Acquisitions

Krishnan

Yakimenko

2022

JRFM

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“…First, our study will be of interest to academics, interested in understanding general acquisition trends (e.g., Andrade et al 2001;Andriuškevičius and Štreimikien ė 2021) and performance (e.g., King et al 2021;Krishnan and Wu 2022). Our work also adds to the limited evidence on the mergers and acquisitions in Ukraine (Maksymenko 2018).…”

Section: Contributions and Implicationsmentioning

confidence: 92%

False Friends? On the Effect of Bureaucracy, Informality, Corruption and Conflict in Ukraine on Foreign and Domestic Acquisitions

Gonchar

Kalinin

Khadzhynova

et al. 2022

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Ukraine had had its ups and downs in recent years. It has, for example, dramatically improved its ease of doing business (EOBB), and it has made some progress reducing the relative size and influence of its shadow economy (Shadow). But, the Russian invasion of 2014 (Conflict) forced it to take a few developmental steps backwards. In this paper, we consider the effect of these factors, positive and negative, on the number of mergers and acquisitions, involving Ukrainian firms. We construct a sample of 4030 acquisitions in the period 1 January 2000–31 December 2020. Our results suggest that while the number of acquisitions by domestic firms increases in efficiency (+EOBB), transparency (−Shadow) and peace (−Conflict), the number of foreign acquisitions increases in bureaucracy (−EOBB), in informality (+Shadow), and unrest (+Conflict). From an academic perspective, our findings fit with some recent work, while providing new insights too. From a policy perspective, our findings that the number of foreign acquisitions is negatively affected by Ukraine’s attempts to modernize and improve its economy and is positively affected by the ongoing conflict with Russia, makes us wonders what type of ‘false friends’ make such investments.

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“…Thus, we use another variable, SameST, which equals one if the target and the acquirer are headquartered in the same state, i.e., the takeover is geographically focused; otherwise, the merger is geographically diversified and the variable equals zero. A geographically diversified merger allows the acquirer to obtain a greater market share and increase the market power of the existing business (Krishnan and Wu 2022), and to operate in a more diversified regulatory environment (Zámborský et al 2021); however, it also increases the level of information asymmetry (Krishnan and Wu 2022).…”

Section: Control Variablesmentioning

confidence: 99%

External vs. In-House Advising Service: Evidence from the Financial Industry Acquisitions

Huang

Zhang

2023

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This study analyzes the wealth impact on M&A deals when the acquirers in the financial industry utilize external versus in-house advising services. A quasi-natural observatory setting is applied to investigate the costs and benefits of retaining a financial advisor. Based on agency theory, information asymmetry and conflict of interest both exist in the setting of M&A deals when acquirers use advisory services. We first find that almost 40% of financial acquirers are more likely to use in-house advising services, the frequency of which is significantly higher than that of non-financial acquisitions previously documented. Further, we find that in certain complex deals of greater information asymmetry, the frequency of retaining advisory services in-house is even higher. This finding suggests that for financial acquirers who possess expertise in the M&A market, the concern of conflict of interests (i.e., misaligned incentives) between the acquirers and their advisors are more salient than the concern of information asymmetry. More importantly, using the two-stage regressions method controlling the endogeneity of the choice between in-house versus external advisory services, this study finds that the three-day abnormal returns around the acquisition announcements are 4.5% higher for the acquirers retaining in-house advisory services, 18.7% higher for the corresponding target, and the combined merger gains are 2.2% higher. Overall, our findings provide direct evidence of the agency cost when an external advisor is hired and document the incremental values that the financial acquirers’ in-house advisory services may create.

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Market Misreaction? Evidence from Cross-Border Acquisitions

Cited by 5 publications

References 60 publications

Market Misreaction? Leverage and Mergers and Acquisitions

Market Misreaction? Leverage and Mergers and Acquisitions

False Friends? On the Effect of Bureaucracy, Informality, Corruption and Conflict in Ukraine on Foreign and Domestic Acquisitions

External vs. In-House Advising Service: Evidence from the Financial Industry Acquisitions

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