Dissertation
Empirical analyses of the impacts of acquisitions on the acquiring firms: a "transfer function-intervention" modeling approach
Doctor of Philosophy (Ph.D.), Drexel University
1996
DOI:
https://doi.org/10.17918/00000657
Abstract
This dissertation investigates Mergers-and-Acquisitions (M&As) as "intervention-events", intervening occurrences and strategic actions which perturb the "steady-state" and equilibrium conditions of acquiring firms' dynamic systems. It develops rigorous evidence on whether acquiring firms truly gain or suffer deteriorations in corporate performance and "shareholder-value" due to M&As. It also examines pre-acquisition determinants of post-acquisition performance, develops a "Logit" model that predicts success/failure outcomes, and determines the stock market's ability to forecast post-acquisition performance. Nine research questions are addressed. The empirical effort comprises two phases. Phase-1 Study analyzes the dynamic impacts of M&As events on acquiring firms' output "observables" (i.e., stock-price, trading-volume, accounting-return performance), examining whether these effects are (1) Immediate or Delayed, (2) Abrupt or Gradual, and (3) Permanent or Temporary. A dynamic time-series methodology, the "Transfer Function-Intervention" (TFI) modeling approach, is implemented as a rigorous alternative to Event-Study and other Ordinary-Least-Squares methods commonly used. Phase-2 Study consists of cross-sectional regression, Logit, and Phi-Correlation analyses of M&As' performance and success/failure outcomes. Results in Phase-1 Study indicate that: (1) Overall, M&As erode acquiring firms' corporate performance and shareholder-value significantly. (2) M&As announcements significantly alter investors' beliefs and expectations, and increase trading in acquirers' shares. On the impacts' "dynamics", the results reveal (1) immediate and Delayed "Abrupt-Permanent" effects not "Delayed-Gradual-Permanent" impacts on corporate performance; (2) "Immediate-Abrupt-Permanent" an "Immediate-Gradual-Permanent" impacts on share prices; and (3) "Immediate-Abrupt-Temporary" effects with Permanent "residual-gains", and "Immediate-Abrupt-Permanent" impacts on acquirers' trading volume. Results in Phase-2 Study indicate that in "Unrelated" M&As, acquirers' Prior M&As-Experience and Insiders' Ownership-Stake affect post-acquisition performance with inverted "U-shaped" effects. The hypothesized effects are not significant in "Related" M&As. However, Relatedness has significant "U-shaped" effects on M&As' likelihood of post-acquisition success, thus revealing a "Relatedness-Curse" paradox, Logit models are effective tools with 85% "Classification-Accuracy-Index". The stock market's forecasting ability is poor with only 56.5% Classification-Accuracy-Index. The evidence supports "Management-Utility-Maximization" against competing "Firm-Value-Maximization" hypotheses. The TFI methodology is shown unambiguously superior to Event-Study methods plagued with endemic estimation biases. Overall, this work provides compelling reasons to (1) strengthen corporate management's fiduciary obligations, (2) revise Finance's Asset-Pricing and Agency theories, and (3) rethink Strategic Management's Diversification and Relatedness myths.
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Details
- Title
- Empirical analyses of the impacts of acquisitions on the acquiring firms
- Creators
- Alfred Ebongue Din
- Contributors
- Thomas Chi-Nan Chiang (Advisor)P. N. SubbaNarasimha (Advisor)
- Awarding Institution
- Drexel University
- Degree Awarded
- Doctor of Philosophy (Ph.D.)
- Publisher
- Drexel University; Philadelphia, Pennsylvania
- Number of pages
- xvi, 509 pages
- Resource Type
- Dissertation
- Language
- English
- Academic Unit
- College of Business (and) Administration (1970-1999); Drexel University
- Other Identifier
- 991014970214204721