BUSI 4500 Lecture Notes - Lecture 7: Hubris, Adverse Selection, Event Study
7 May 2018
School
Department
Course
Professor
Articles
1. motive for takeovers: an empirical investigation, Berkovitch & Narayanan
(1993)
- distinguish synergy agency, hubris for M&A
- sample: 330 tender offers, 1963-1988
- hypotheses
o + gain, synergy motive
o – gain, agency motive
o 0, hubris
- gain measure
o target gain = CAR x MV of equity at end of day – (MV shares held by
acquirer)
o acquirer gain = CAR x MV at end
o total gain = target + acquirer
- methodology
o examine correlation btwn target gain & total gain (regression)
- result
o synergy = +
o agency = -
o competition = higher mean gain on target, x bidder
2. Explaining premium paid for large acquisition: evidence of CEO hubris,
Hayward & Hambrick (1997)
- Examine CEO hubris to explain high acquisition premium
- Sample: US public firm over pmt 100mil
- Why large premium
o Weak target performance
o Potential synergy effect
o CEO hubris - overconfident
- Hypotheses (test if high premium because of synergy/ error in estimation
o Higher recent performance, higher premium
o Higher media praise, higher premium
o Higher compensation, higher premium
- Methodology
o Multiple regression analysis
o Dependent
▪ Acquisition premium
• (purchase price – pretakeover price)/ pretakeover p
• MV /share
▪ Firm performance : CAR, 1 yr return
o Independent (measure hubris)
▪ Recent performance
• (stock price appreciation + div return)/ initial stock
price
▪ Media praise of CEO
• sum codes that assess press favorability
arg ( )T et Gain Total Gain
arg ( )T et Gain Acquirer Gain
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Document Summary
Articles: motive for takeovers: an empirical investigation, berkovitch & narayanan (1993) T result: examine correlation btwn target gain & total gain (regression) arg arg et gain et gain. Acquirer gain: synergy = , agency = , competition = higher mean gain on target, x bidder, explaining premium paid for large acquisition: evidence of ceo hubris, Examine ceo hubris to explain high acquisition premium. Sample: us public firm over pmt 100mil. Why large premium: weak target performance, potential synergy effect, ceo hubris - overconfident. Hypotheses (test if high premium because of synergy/ error in estimation: higher recent performance, higher premium, higher media praise, higher premium, higher compensation, higher premium. Performance of domestic vs us bidder in cad acquisition. Hypotheses (domestic win: fdi control, higher gov control, industy competition, horizontal merger (bidder & target more related, pmt method, more cash pmt, Result: + ar, domestic insignificant return, us, fdi, industry competition, pmt method x matter.
