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Bad Corporate Marriages: Waking Up In Bed The Morning After, Ye Cai, Hersh Shefrin
Bad Corporate Marriages: Waking Up In Bed The Morning After, Ye Cai, Hersh Shefrin
Finance
This paper examines corporate risk taking behavior in the wake of unsuccessful merger activities. We find that relative to other firms, firms that made bad acquisitions take both more systematic risk and more idiosyncratic risk. Moreover, higher risk is associated with greater value destruction and stronger corporate governance. The increased risk can be traced to increased cash flow volatility, increased leverage, decreased asset liquidity, more investment in R&D, and more equity-based executive compensation. These findings are in line with the behavioral approach suggesting that in the domain of losses, decision makers generally become more tolerant of risk.
Common Auditors In M&A Transactions, Ye Cai, Yongtae Kim, Jong Chool Park, Hal D. White
Common Auditors In M&A Transactions, Ye Cai, Yongtae Kim, Jong Chool Park, Hal D. White
Accounting
We examine merger and acquisition (M&A) transactions in which the acquirer and the target share a common auditor. We predict that a common auditor can help merging firms reduce uncertainty throughout the acquisition process, which allows managers to more efficiently allocate their capital, resulting in higher quality M&As. Consistent with our prediction, we find that deals with common auditors have higher acquisition announcement returns than do non-common-auditor deals. Further, we find that the common-auditor effect is more pronounced for deals with greater pre-acquisition uncertainty and deals involving acquirers and targets that are audited by the same local office of the …
Board Connections And M&A Transactions, Ye Cai, Merih Sevilir
Board Connections And M&A Transactions, Ye Cai, Merih Sevilir
Finance
We examine M&A transactions between firms with current board connections and find that acquirers obtain higher announcement returns in transactions with a first-degree connection where the acquirer and the target share a common director. Acquirer returns are also higher in transactions with a second-degree connection where one acquirer director and one target director serve on the same third board. Our results suggest that first-degree connections benefit acquirers with lower takeover premiums while second-degree connections benefit acquirers with greater value creation. Overall, we provide new evidence that board connectedness plays important roles in corporate investments and leads to greater value creation.