FIRM SIZE AND THE GAINS FROM ACQUISITIONS. Sara B. Moeller, Frederik P. Schlingemann, Rene M. Stulz. Journal of Financial Economics 73 (2004)

Transcription

1 FIRM SIZE AND THE GAINS FROM ACQUISITIONS Sara B. Moeller, Frederik P. Schlingemann, Rene M. Stulz Journal of Financial Economics 73 (2004) Presenter: Anh Tran 1. Introduction What is the size effect? Size effect = AAR Small - AAR Large AAR Small(Large) : Abnormal Announcement Returns of Small (Large) acquirers 1

2 1. Introduction The sample 1. Introduction The gains to acquiring-firm shareholders 2

3 The relation of acquiring-firm size to Deal characteristics The relation of acquiring-firm size to Firm characteristics 3

4 Abnormal returns, firm size, deal characteristics, and firm characteristics Panel A: Full sample Panel C: Public targets Panel B: Private targets Panel D: Subsidiary targets Does size proxy for acquiring-firm and deal characteristics? Dependent variable is Abnormal Announcement Return 4

5 Does size proxy for acquiring-firm and deal characteristics (cont.)? Results not reported Authors also run the same regression for: each type of target firm each type of financing Size effect still exists MIN size effect MAX size effect 1.25% (acquisition of Private firms) 3.49% (acquisition of Public firms) 5

6 3. Why do Large firms have lower Abnormal Announcement Returns than Hypotheses explain for size effect? Hypothesis Paper Overvaluation Dong et al. (2002) Equity signaling Myers & Majluf (1984) Arbitrageurs Mitchel et al. (2004) Hubris Roll (1986) Hypothesis will explain for size effect if: it would predict lower return for acquisition by LARGE firms and it would apply less (or not apply) to acquisition by SMALL firms 3. Why do Large firms have lower Abnormal Announcement Returns than Overvaluation or Equity signaling hypothesis? 6

7 3. Why do Large firms have lower Abnormal Announcement Returns than Arbitrageurs hypothesis? Mitchell et al. (2004) provide evidence that arbitrageurs put pressure on stock price of the acquiring firm for all-equity offers for public firms, by establish: Long positions in target stock Short positions in bidder stock Price pressure effect should be larger as Relative size variable increases. Larger firms Small firms Relative size coefficient a insignificant Arbitrageurs hypothesis can explain the size effect for acquisition of public firm with all-equity offers. 3. Why do Large firms have lower Abnormal Announcement Returns than Hubris hypothesis - Do large firms overpay? Premium Small firms Large firms 62% 68% [52%] [61%] Successful deal 86.33% 88.95% 7

8 3. Why do Large firms have lower Abnormal Announcement Returns than Hubris hypothesis - Do large firms overpay (cont.)? Dependent variable is Premium (OLS) 3. Why do Large firms have lower Abnormal Announcement Returns than Hubris hypothesis - Do large firms overpay (cont.)? The evidence on premiums and probability of success is consistent with Hubris hypothesis. Could this explain for size effect? Larger firms Small firms Premium coefficient (-) significant insignificant Hubris hypothesis can explain the size effect. 8

9 3. Why do Large firms have lower Abnormal Announcement Returns than Do small firm acquisitions have synergy gains? 3. Why do Large firms have lower Abnormal Announcement Returns than Post-event stock price performance 9

10 3. Why do Large firms have lower Abnormal Announcement Returns than Post-event stock price performance (cont.) Conclusion: AAR of Small firms exceeds that of Large firms by 2.24% Except for acquisition of Public firms paid for with Equity, Small firms gain significantly at announcement date. Large firms experience significant loss when they acquire Public firms regardless of how they paid for. No evidence that size effect is reserved over time. Arbitrageurs hypothesis can explain the size effect for acquisition of public firm with all-equity offers. Hubris hypothesis can explain the effect for whole samples. 10