Why do some merger and acquisitions deals fail? A global perspective

Abstract

We analyse why some merger and acquisitions (M&A) deals are withdrawn paying particular attention to the economic freedom and legal environment of countries. We use a large dataset based on deals worldwide from over 140 countries during the period 1977–2014. Our core finding is that the likelihood of a deal's withdrawal tends to increase if the economic freedom/quality of legal environment of the acquiring (target) firm's country is higher (lower). These core findings matter more for the non‐financial sector, during non‐crisis years, and in developed financial markets. We also report that the deals have higher tendency to be withdrawn if the target firm's size is larger or its profitability is lower; and the acquiring firm's size is smaller. Furthermore, our analyses reveal that deal characteristics (i.e., deal attitude, means of payment, deal size, ownership sought) also matter in affecting the outcome of announced M&A deals.

Teoria Institucional e Finanças: uma Revisão Sistemática da Literatura

“…Caracterıśticas ambientais e institucionais (eRiciencia dos mercados, controle corporativo, transparência de informações, competição, liquidez, pressões externas e institucionais) são incorporadas nas agendas de pesquisas em Rinanças, na tentativa de explicar fenômenos que antes permaneciam lacunas argumentativas e sem respaldo na literatura, como exemplo, essas caracterıśticas foram apontadas como capazes de inRluenciar as possibilidades de sucesso da F&A. Sob a ótica da Teoria Institucional, o fracasso ou sucesso dos negócios é inRluenciado pelo ambiente institucional em paıśes com maior liberdade econômica e barreiras de entradas de novos concorrentes (Attah-Boakye et al, 2020).…”

“…A Teoria Institucional tem se mostrado como ferramenta útil para oferecer suporte às discussões no âmbito das Rinanças, mais precisamente na Governança Corporativa (Ntim & Soobaroyen, 2013;Chakrabarty & Bass, 2014;Yamahaki & Frynas, 2016), na estrutura de capital (DrifRield, Mickiewicz & Temouri, 2014), nos investimentos (Derouiche, Muessig & Weber, 2020;Kwabi, Boateng, & Adegbite, 2018), nas fusões e aquisições (Attah-Boakye et al, 2020;Du, Boateng & Newton, 2015), nas Rinanças culturais (Goodell, 2019), nas implicações do gerenciamento de resultados (Eng et al, 2019) e na análise e mensuração de desempenho (Russo et al, 2012;Almeida & Callado, 2017).…”

Does deterioration in rule of law per se create or destroy value?

“…Empirical analyses use indicators such as the economic freedom index from the Heritage Foundation, the Anti-Director Right Index, the World Bank WGIs, and the Economic Freedom of the World (EFW) index from the Fraser Institute. According to Gwartney et al [2015] and Attah-Boakye et al [2021], EFW mitigates the probable dispersion of interrelated criteria, enhances a full perspective of the economic freedom of a country, and considers a global approach from various perspectives (investors, shareholders, and stakeholders). EFW regularly ranks 157 countries and, in some cases, tracks back to the 1970s.…”

Reference prices and withdrawn acquisitions

“…On the one hand, deal withdrawal could be affected by economic conditions, target performance, deal type, as well as bidder's characteristics (Safieddine and Titman, 1999; Weber and Camerer, 2003; Savor and Lu, 2009; Malmendier et al, 2016; Jacobsen, 2014). For example, Attah‐Boakye et al (2021) utilize an international sample and find economic freedom, legal environment, as well as deal characteristics could affect the withdrawal possibility. On the other hand, withdrawal deals could be the outcome of unfavourable market responses (Jennings and Mazzeo, 1991; Luo, 2005; Kau et al, 2008).…”

“…In addition, a deal might be withdrawn because of a regulation violation. A few studies (Savor and Lu, 2009; Jacobsen, 2014; Malmendier et al, 2016; Wang, 2018; Attah‐Boakye et al, 2021) have explored the withdrawal reasons for failed deals. We also investigate the effectiveness of reference prices on deal outcomes by considering price‐related or non‐price‐related withdrawal reasons 5 .…”