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Acquisitions Driven By Stock Overvaluation: Are They Good Deals?, Fangjian Fu, Leming Lin, Micah Officer
Acquisitions Driven By Stock Overvaluation: Are They Good Deals?, Fangjian Fu, Leming Lin, Micah Officer
Research Collection Lee Kong Chian School Of Business
Theory and recent evidence suggest that overvalued firms can create value for shareholders if they exploit their overvaluation by using their stock as currency to purchase less overvalued firms. We challenge this idea and show that, in practice, overvalued acquirers significantly overpay for their targets. These acquisitions do not, in turn, lead to synergy gains. Moreover, these acquisitions seem to be concentrated among acquirers with the largest governance problems. CEO compensation, not shareholder value creation, appears to be the main motive behind acquisitions by overvalued acquirers.
Social Networks And Risk Taking: Evidence From Corporate Control Activities, Yen Teik Lee
Social Networks And Risk Taking: Evidence From Corporate Control Activities, Yen Teik Lee
Research Collection Lee Kong Chian School Of Business
This paper investigates the impact of social ties between the Chief Executive Officer (CEO) andboard members on corporate risk-taking in mergers and acquisitions (M&As) and on shareholdervalue. Using a measure of CEO-director connections in a large sample of U.S. firms from 2000 to2010, we document that boardroom connections lower firm acquisitiveness. If connected CEOsundertake M&As, they are less likely to choose focus acquisitions, and more likely to pay in stock.CEO-board connections do not enhance firm value in M&As. Higher levels of boardroomconnection are associated with lower announcement returns and lower subsequent return on assets.Our results are robust to alternative explanations …
Acquisitions Driven By Stock Overvaluation: Are They Good Deals?, Fangjian Fu, Leming Lin, Micah Officer
Acquisitions Driven By Stock Overvaluation: Are They Good Deals?, Fangjian Fu, Leming Lin, Micah Officer
Research Collection Lee Kong Chian School Of Business
Overvaluation may motivate a firm to use its stock to acquire a target whose stock is not as overpriced (Shleifer and Vishny (2003)). Though hypothetically desirable, these acquisitions in practice create little, if any, value for acquirer shareholders. Two factors often impede value creation: payment of a large premium to the target and lack of economic synergies in the acquisition. We find that overvaluationdriven stock acquirers suffer worse operating performance and lower long-run stock returns than control firms that are in the same industry, similarly overvalued at the same time, have similar size and Tobin’s q, but have not pursued …