How micro-level factors impact merger outcomes
The 'Microstructure of takeover markets' (MERGERMICROSTRUCTURE) project investigated the impact of micro-level factors on merger outcomes. With recent research pointing to important differences in deals initiated by buyers (bidders) as opposed to sellers (target firms), the project team considered the merger process from the point of view of deal initiation. MERGERMICROSTRUCTURE had three main objectives, each focused on answering specific questions related to the merger process. First, the relationship between deal initiation and competition in mergers was analysed (e.g. do bidders prevent outside competition by offering high premiums to target firms?). Research showed that targets choose auctions more often when they initiate deals, and that target firms in the target-initiated group behave as if they are more desperate to find a bidder. The study also revealed that when a bidder initiates a deal with the target, there is almost an even chance that the original bidder will acquire the target. The second objective was to analyse managerial incentives during the merger process (e.g. does CEO compensation, such as bonus payments and stock option grants, differ across initiation groups?). Empirical evidence indicated that merger-induced cash payments do not differ across deal initiation groups, but that for target CEOs, monetary benefits are higher in bidder-initiated deals than in target-initiated deals. MERGERMICROSTRUCTURE's third area of analysis was the relationship between earnings management and deal initiation (e.g. do acquirers manage earnings first so that the financials of their firms look much stronger, and then initiate deals?). Research did not point to opportunistic behaviour of target firms (i.e. there was no significant association emerged between earnings management proxies and deal initiation status). Representing major corporate events that can have resounding effects on respective industries and the economy, research findings have important implications for research into global corporate mergers and acquisitions activities, which by the end of 2012 totalled USD 2.7 trillion in volume. As such, the project's examination of the mechanics of corporate takeovers has contributed new knowledge that is critical to the development of appropriate legal frameworks defining business conduct.
Keywords
Mergers and acquisitions, corporate takeover, micro-level factors, deal initiation, earnings management, business conduct
