Essays in mergers and acquisitions

Wenjing Ouyang

doi:10.17918/etd-3809

Mergers and acquisitions are one of the most important corporate investment decisions that are often strategic. During the decision making, managers and shareholders are exposed to all sorts of information sets regarding merger opportunities and deal evaluation. In this dissertation, I examine whether managers and shareholders use valuable information from financial advisors and the financial market and disregard potentially misleading information from financial advisors when making merger investment decisions. The first essay is titled "Do Shareholders Listen? M&A Advisor Opinions and Shareholder Voting. Recent studies find that merger advisors, in particular those of the acquirer, often face conflicts of interest and present overly optimistic opinions about a deal. It is not clear, however, how shareholders react to these opinions. Using a sample of mergers announced from 2000 to 2006, we examine whether target and acquirer advisors' opinions (valuation of target equity, long-term earnings forecasts, and affiliated analyst recommendations) impact how acquirer shareholders vote on mergers. Our results indicate that target advisor opinions, but not those of acquirer advisors, significantly impact shareholder voting. Further, if a deal receives higher shareholder support, the merger advisor is more likely to be retained in future deals. Finally, acquirer advisor opinions are negatively related to post-merger performance. We conclude that shareholders are able to discern the potential conflict of interest of merger advisors and follow the advice of the less-optimistic target advisors. Our study provides important evidence for the ongoing debate about regulatory reform governing investment banking transactions. The second essay is titled "Stock Price Idiosyncratic Information and Merger Investment Decisions". I define stock price idiosyncratic information (SPII) as investors' firm-specific information impounded into stock price through informed trading. My study examines whether SPII provides managers the new information about the value of growth opportunities and improves merger investment decisions. Focusing on 2,018 major merger transactions announced during the period from 1990 to 2006, I find the acquirer SPII increases the sensitivity of merger investment to q. It is positively associated with acquirer announcement return, combined merger return, long-run abnormal return, and post-merger operating performance. Furthermore, these relations are mainly driven by acquirers with high q or blockholder ownership. My main results are robust to the endogeneity issue and the inclusion of manager's private information. Overall, these results support my learning hypothesis. Further, management learning efficiency is positively related with firm growth opportunities, management quality, and corporate governance. My study provides important evidence that managers learn from the stock market in making merger investment decisions.

Essays in mergers and acquisitions

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Essays in mergers and acquisitions

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