In the U.S. alone, deals announced in the last decade amount to more than $10 trillion. Yet analysis of M&A research concludes that — on average — mergers and acquisitions fail to create value for the owners of the acquiring firm in the short term.
Intrigued by the question of why managers pursue such deals even when they do not improve shareholder wealth, Dharwadkar, Brandes, and Goranova examined the implications of ownership from a novel perspective. In their paper “Owners on Both Sides of the Deal: M&A and Overlapping Institutional Ownership,” in Strategic Management Journal, they investigated the consequences of “overlapping” institutional ownership — whereby owners may have simultaneous stakes in both the acquirer and the target to an M&A deal. They further studied whether the negative effect of overlapping ownership is constrained by better corporate governance as measured by level of board independence, CEO duality (when the CEO also serves as chairman of the board), managerial ownership, and CEO stock options.
They found that the shareholder losses in acquiring firms were clearly related to the level of overlapping ownership:
• In M&A deals where there was no overlapping institutional ownership, the acquiring firm value went down by $1.6 million. In contrast, in deals where there were overlapping ownership stakes, the acquiring firm value fell by $111.7 million.
• Interestingly, a further examination of the overlapping deals revealed that those with less overlap (the bottom 25% of deals) were associated with a loss of $80.7 million for the acquiring firm. In stark contrast, deals with significant overlap (the top 25% of overlapping deals) was associated with an average loss of $379.8 million for acquirers.
The trio found that these results held true for two measures of overlap: both the number of overlapping owners involved in the deals as well as the percentage of ownership overlap. While the spread of overlapping ownership is associated with suboptimal M&A deals, effective oversight by boards constrains the negative effect of overlapping ownership. Specifically, boards with more independent directors and those having chairmen separate from the CEO role can counteract the effect of overlapping owners. The authors conclude that managers pursue suboptimal deals because overlapping and nonoverlapping owners have different interests in such deals--that overlapping owners who may lose on the acquirer’s side may make up for this loss on the target’s side of the deal.
“Our study raises the question of whether disclosure of overlapping ownership is warranted,” says Dharwadkar.
Amy Schmitz, director of communications, Whitman School of Management, Syracuse University, (315) 443-3834, email@example.com
AUTHORS: Ravi Dharwadkar, professor of management, Pamela Brandes, associate professor of management, and Maria Goranova ’07 PhD, assistant professor in the Lubar School of Business at the University of Wisconsin—Milwaukee
Amy Schmitz | Newswise Science News
Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)
Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
Whether you call it effervescent, fizzy, or sparkling, carbonated water is making a comeback as a beverage. Aside from quenching thirst, researchers at the University of Illinois at Urbana-Champaign have discovered a new use for these "bubbly" concoctions that will have major impact on the manufacturer of the world's thinnest, flattest, and one most useful materials -- graphene.
As graphene's popularity grows as an advanced "wonder" material, the speed and quality at which it can be manufactured will be paramount. With that in mind,...
Physicists at the University of Bonn have managed to create optical hollows and more complex patterns into which the light of a Bose-Einstein condensate flows. The creation of such highly low-loss structures for light is a prerequisite for complex light circuits, such as for quantum information processing for a new generation of computers. The researchers are now presenting their results in the journal Nature Photonics.
Light particles (photons) occur as tiny, indivisible portions. Many thousands of these light portions can be merged to form a single super-photon if they are...
For the first time, scientists have shown that circular RNA is linked to brain function. When a RNA molecule called Cdr1as was deleted from the genome of mice, the animals had problems filtering out unnecessary information – like patients suffering from neuropsychiatric disorders.
While hundreds of circular RNAs (circRNAs) are abundant in mammalian brains, one big question has remained unanswered: What are they actually good for? In the...
An experimental small satellite has successfully collected and delivered data on a key measurement for predicting changes in Earth's climate.
The Radiometer Assessment using Vertically Aligned Nanotubes (RAVAN) CubeSat was launched into low-Earth orbit on Nov. 11, 2016, in order to test new...
A study led by scientists of the Max Planck Institute for the Structure and Dynamics of Matter (MPSD) at the Center for Free-Electron Laser Science in Hamburg presents evidence of the coexistence of superconductivity and “charge-density-waves” in compounds of the poorly-studied family of bismuthates. This observation opens up new perspectives for a deeper understanding of the phenomenon of high-temperature superconductivity, a topic which is at the core of condensed matter research since more than 30 years. The paper by Nicoletti et al has been published in the PNAS.
Since the beginning of the 20th century, superconductivity had been observed in some metals at temperatures only a few degrees above the absolute zero (minus...
16.08.2017 | Event News
04.08.2017 | Event News
26.07.2017 | Event News
18.08.2017 | Life Sciences
18.08.2017 | Physics and Astronomy
18.08.2017 | Materials Sciences