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  3. 2023
  4. Program
  5. Corporate Finance: Mergers and Acquisitions
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Corporate Finance: Mergers and Acquisitions

Paper Session

Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)

Sheraton New Orleans, Maurepas
Hosted By: American Finance Association
  • Chair: Katharina Lewellen, Dartmouth College

Credit Market Driven Acquisitions

Huseyin Gulen
,
Purdue University
Candace Jens
,
Tulane University
Stefano Rossi
,
Bocconi University

Abstract

Using a comprehensive sample of takeovers from 1983 to 2016, we show that credit market conditions drive takeover activity. A deterioration in the aggregate credit quality of corporate bond issuers is associated with a large increase in aggregate deal value for all takeovers, and the strongest effects are for all cash deals. When credit spreads are low in quarter t, junk bonds are disproportionately issued and aggregate credit quality deteriorates; debt-financed takeovers increase from quarter t+2, peak at quarter t+5, and subsequently subside as credit spreads widen. At the firm-level, buoyant credit market conditions are associated with an increase in debt-financed takeover activity, particularly when acquiring managers are overconfident. Our results are consistent with the hypothesis that buoyant credit market conditions and managerial overconfidence coexist in credit market driven acquisitions.

Stealth Mergers and Investment Outcomes

Rajesh Aggarwal
,
Northeastern University
Mufaddal Baxamusa
,
University of St. Thomas

Abstract

Mergers below a size threshold do not require government pre-merger review (stealth mergers). Stealth mergers of publicly-traded targets are anti-competitive: industry concentration increases and product market competition decreases relative to non-stealth mergers. They also result in less R&D spending, patenting, and capital expenditures, and lower value patents for both acquiring firms and their competitors. Stealth targets receive higher premiums than non-stealth targets, and stealth acquirers and their competitors earn higher returns. For publicly-traded targets, transaction size is unlikely to be strategically manipulated to stay below the threshold, suggesting these results are causal. Pre-merger review is effective in preventing anti-competitive behavior.

Political Attitudes, Partisanship, and Merger Activity

Ran Duchin
,
Boston College
Abed El Karim Farroukh
,
University of Washington
Jarrad Harford
,
University of Washington
Tarun Patel
,
Southern Methodist University

Abstract

Using detailed data on employees’ campaign contributions to Democrats and Republicans, we find that firms are considerably more likely to announce and complete a merger when their political attitudes are closer. Furthermore, acquisition announcement returns and post-merger performance are higher when employees have more similar political attitudes. The effects are stronger when political polarization is greater, during economic expansions, and when the target and acquirer plan to integrate operations. The effect of political attitudes is distinct from that of corporate culture. Overall, we provide new estimates that political attitudes and polarization affect the allocation of real assets in the economy.

Discussant(s)
Robin Greenwood
,
Harvard Business School
German Gutierrez
,
New York University
Elisabeth Kempf
,
Harvard Business School
JEL Classifications
  • G3 - Corporate Finance and Governance