Firms receiving shareholder proposals are 16% more likely to become a target of acquisition. Such companies earn approximately 7.2% lower acquisition returns compared to gains for targets with no proposals. Higher acquisition likelihood and lower target returns are primarily associated with proposals drawing a larger proportion of favorable votes, larger voter turnout, as well as with proposals submitted shortly before takeover announcements, and motivated by the removal of antitakeover provisions. Our findings suggest that shareholder proposals can assist bidders in the identification of targets or signal the willingness of target shareholders to accept bids with lower premiums.
Relative to similar firms, targets of completed takeovers issue more debt and repurchase more equity around takeover announcement. We link these leverage adjustments to enhanced target bargaining power in negotiations with bidders over expected merger synergy gains, as debt issuance results in positive abnormal equity returns, with these gains coming at the expense of bidder shareholders. Valuation implications are strongest for debt issuances immediately surrounding takeover announcement. Target firm debt issuance after takeover announcement suggests that relatively low (high) ex ante target (bidder) bargaining power is subsequently adjusted upward (downward) with target debt issuances.
The severity and complexity of the recent financial crisis has motivated the need for understanding the relationships between sovereign ratings and bank credit ratings. This is the first study to examine the impact of the “international” spillover of sovereign risk to bank credit risk through both a ratings channel and an asset holdings channel. We find evidence that confirms both channels. In the first case, the downgrade of sovereign ratings in GIIPS countries leads to rating downgrades of banks in the peripheral countries. The second channel indicates that larger asset holdings of GIIPS debt increases the credit risk of cross-border banks and, hence, the probabilities of downgrade.
We find that institutions trade in the same direction as target price changes based on 6,415 U.S. firms from 1999 to 2011, even after controlling changes in stock recommendations and earnings forecasts. The impact of target price changes on institutional trading is more pronounced for small firms, firms followed by few analysts, and illiquid firms, and is mainly limited to transient institutions. We do not find any outperformance for institutions to follow analysts’ target price forecasts, suggesting that institutions could find it easier to justify their investment decisions by following analyst forecasts, although such trading does not result in outperformance.
We use data from the past 30 years of takeover activity in the U.S. banking industry to test competing neoclassical and misvaluation merger theories. Test results are consistent with evidence in the literature that merger activity is significantly related to both structural industry change and stock price misvaluation. Our primary contribution is to show that changes in misvaluation reflect a rise in industry-wide risk taking and that increases in risk originate from changes in industry structure due to deregulation. A measure of bank risk taking subsumes the power of stock price misvaluation to explain subsequent merger activity.