Two essays on M&AS

Abstract

Despite a century-long history of inquiry, mergers and acquisitions (M&A) remain one of the major areas of academic research in finance, microeconomics, and strategic management. This extended dominance across these academic disciplines relates to both growth in the number, volume, and scale of corporate M&A deals, and the significance of their consequences in the modern business landscape. The first essay uses event analysis to examine how M&A affect shareholders’ wealth in acquiring publicly traded media companies. More specifically, we investigate how the defensive motivation for takeovers-in other words, acquisition to avoid takeover-affects the acquirers’ stock price around the time of the acquisition. The study poses the following three research questions. First, do the cumulative abnormal returns (CAR) of bidders around acquisition announcements in the media industry reflect the advantages of the firms’ combination? Second, does the defensive motive for takeover affect the wealth of the acquirer’s shareholders? Finally, which factors related to the defensive motive for takeover are associated with higher (lower) returns for the firm’s shareholders? The study contribute to the existing literature by providing empirical evidence that for the period following the signing of the 1996 Telecommunications Act, the defensive motive for takeovers in the media industry significantly and negatively affected shareholders’ wealth in acquiring firms. Further, we can attribute the presence of this relationship to the fact that through acquisitions, firms provide a signal to the market of their potential resistance to takeover. We show that pure signaling through acquisition is a persistent phenomenon, which supplements, and in some cases substitutes for, antitakeover defenses such as the growth in firm size. Dickerson et al. (2003) first described the latter mechanism. Our study suggests that defensive takeovers are associated with smaller transactions and that the li...