Shareholder litigation in mergers and acquisitions

Krishnan, C. N. V.; Masulis, Ronald W.; Thomas, Randall S.; Thompson, Robert B.

doi:10.1016/j.jcorpfin.2012.08.004

Cited by 83 publications

(63 citation statements)

References 35 publications

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“…Krishnan et al, 2012;Krishnan and Masulis, 2013), and (b) the longer a deal remains open the more scope there is for a competing bidder to place a bid, thereby increasing acquisition premiums and creating the risk of a winner's curse (Giliberto and Varaiya, 1989;Boone and Mulherin, 2008 Second, larger acquirers in weak governance countries might be more able to undertake a 'friendly' deal than larger in strong governance countries. This might arise for several reasons, including political connections, increased market power, and greater financial resources.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect

Humphery‐Jenner

Powell

2014

Journal of Corporate Finance

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This paper examines the relationship between acquirer size, sovereign governance, and value-creation in acquisitions. Prior literature indicates that larger acquirers' acquisitions create less shareholder wealth in developed markets, arising primarily from agency and entrenchment problems. However, in weak governance environments, size might have off-setting benefits, including increased market power and political connections. We use a sample of 17,647 takeovers from 45 countries to examine the acquirer size effect around the world. We find that the acquirer size effect exists internationally, but is smaller in magnitude in weak governance markets. Compared with larger acquirers in strong governance countries, large acquirers in weak governance countries do takeovers that generate higher stock-returns and increase post-takeover operating performance. Their deals are also more likely to be friendly, and take less time to complete. We also find that the benefits of larger acquirer size increase with the importance of political connections in the acquirer's country. The results suggest that country-governance can moderate the impact of corporate characteristics, such as corporate size.JEL Codes: G34, G38, K22, K23

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Section: Hypothesis Developmentmentioning

confidence: 99%

Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect

Humphery‐Jenner

Powell

2014

Journal of Corporate Finance

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“…Krishnan et al. () look at M&A litigation cases mostly based on overpayment to the target's shareholders (or managers). This is opposed to Le Maux and Francoeur's () findings.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Moreover, Krishnan et al. () focus only on M&A premiums, and Yuan and Zhang () focus on the interest rate of debts.…”

Section: Introductionmentioning

confidence: 99%

Litigation risk: Measurement and impact on M&A transaction terms

Bruslerie

Maux

2018

Business Fin & Account

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The purpose of the paper is to propose an original proprietary proxy of a firm's litigation risk. We extend the scope of litigation risk outside of the conflicts with shareholders and the domain of security litigation. We demonstrate that the source of the risk of litigation can be found in the firm's policies and in its management's operational or strategic decisions, even if a sector conditioning effect exists. Based on a sample of 465 US M&A transactions between 2000 and 2014, we provide evidence that the level of litigation risk, at the acquirer's level, has a positive and significant impact on the takeover premium. We also provide evidence that a significant relationship exists between the acquirer's litigation risk and the means of payment. An extension of the sample to international transactions is used as a robustness check; it confirms the previous results.

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“…Empirical research examining its role at the turn of the millennium found that class action lawsuits challenging the fairness of the consideration paid in M&A transactions had a positive impact on takeover premiums. 104 However, as we discussed in section __ above, merger litigation's future has been placed in jeopardy by the adoption of forum selection bylaws and fee shifting bylaws. If this is true, is there another form of litigation that could take its place?…”

Section: Appraisal Arbitragementioning

confidence: 99%

Addressing Agency Costs Through Private Litigation in the U.S: Tensions, Disappointments, and Substitutes

Cox

Thomas

2015

SSRN Journal

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3 an important policing mechanism of managerial abuses at U.S. public companies. 5 Different types of representative litigation have had their moment in the sun -derivative suits early on, followed by federal securities class actions, and most recently merger litigation-often producing benefits for shareholders, but posing difficult challenges as well. In particular, the benefits are qualified by another concern, the litigation agency costs that surround shareholder suits. This form of agency costs arises since the suits are invariably representative with no requirement that the named plaintiffs have a substantial ownership interest in the corporation, so that their prosecution could be easily seen as lawyer-driven. 6 And that perception is further underscored in the U.S. where the "American Rule," in contrast to the "Loser Pays Rule,"provides no governor on the suit's initiation and prosecution.In this article, we assess the interactions of shareholder suits and governance mechanisms. Our thesis is straightforward: we claim that the recent rise of some important governance developments is a natural consequence of both the ineffectiveness and inefficiency of private suits to address certain genre of managerial agency costs. That is, just as one part of a balloon expands when another part contracts, we find that governance responses evolve to fill voids caused by the decompression of shareholder monitoring once supplied by private suits. In other words, as representative shareholder litigation comes under increasing attack, greater attention needs to be devoted to governance and market mechanisms as alternative means to address managerial agency costs.

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Shareholder litigation in mergers and acquisitions

Cited by 83 publications

References 35 publications

Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect

Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect

Litigation risk: Measurement and impact on M&A transaction terms

Addressing Agency Costs Through Private Litigation in the U.S: Tensions, Disappointments, and Substitutes

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