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Cash holdings, corporate governance, and acquirer returns

Author

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  • Seoungpil Ahn

    (Sogang University)

  • Jaiho Chung

    (Korea University)

Abstract

Background The wealth effect of limiting shareholder rights via anti-takeover provisions(ATPs) is a contentious issue. By taking the differential effect hypothesis perspective, our study aims to provide additional evidence about the relation between ATPs and acquisition performance. Methods We examine the interaction of antitakeover provisions (ATPs) with firm characteristics and governance environment in explaining the cross-section of bidder announcement returns. Using a sample of 3,340 completed acquisitions by 1,217 firms during 1996–2006, we test the association between ATPs, firm characteristics, and governance environments with bidder returns. Results We find that ATPs hurt acquisition performance only when acquirers hold a high level of excess cash. Similarly, ATPs are associated with lower bidder returns only when industry competition is weak and public pension fund ownership is low as well. By contrast, when industry competition is intense and/or public pension fund ownership is high, ATPs do not hurt bidder returns. Conclusions The complementarity among ATPs, excess cash, industry competition, and public pension fund ownership suggests that ATPs per se do not necessarily result in value-destroying acquisitions for all firms. We address the endogeneity issue of unknown variables by using a proxy for firm prestige and draw the same conclusions.

Suggested Citation

  • Seoungpil Ahn & Jaiho Chung, 2015. "Cash holdings, corporate governance, and acquirer returns," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 1(1), pages 1-31, December.
  • Handle: RePEc:spr:fininn:v:1:y:2015:i:1:d:10.1186_s40854-015-0013-6
    DOI: 10.1186/s40854-015-0013-6
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    More about this item

    Keywords

    Cash holdings; Corporate governance; Anti-takeover provisions; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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