Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

The Impact of Owners in Mergers & Acquisitions

28.07.2010
Mergers and acquisitions (M&A) represent important corporate activities that firms undertake for a variety of reasons, such as gaining access to new technology, know-how, patents, or brands; improving or sustaining their market power; or achieving economies of scale and scope.

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, aemehrin@syr.edu

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
Further information:
http://www.syr.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Temperature-controlled fiber-optic light source with liquid core

In a recent publication in the renowned journal Optica, scientists of Leibniz-Institute of Photonic Technology (Leibniz IPHT) in Jena showed that they can accurately control the optical properties of liquid-core fiber lasers and therefore their spectral band width by temperature and pressure tuning.

Already last year, the researchers provided experimental proof of a new dynamic of hybrid solitons– temporally and spectrally stationary light waves resulting...

Im Focus: Overdosing on Calcium

Nano crystals impact stem cell fate during bone formation

Scientists from the University of Freiburg and the University of Basel identified a master regulator for bone regeneration. Prasad Shastri, Professor of...

Im Focus: AchemAsia 2019 will take place in Shanghai

Moving into its fourth decade, AchemAsia is setting out for new horizons: The International Expo and Innovation Forum for Sustainable Chemical Production will take place from 21-23 May 2019 in Shanghai, China. With an updated event profile, the eleventh edition focusses on topics that are especially relevant for the Chinese process industry, putting a strong emphasis on sustainability and innovation.

Founded in 1989 as a spin-off of ACHEMA to cater to the needs of China’s then developing industry, AchemAsia has since grown into a platform where the latest...

Im Focus: First real-time test of Li-Fi utilization for the industrial Internet of Things

The BMBF-funded OWICELLS project was successfully completed with a final presentation at the BMW plant in Munich. The presentation demonstrated a Li-Fi communication with a mobile robot, while the robot carried out usual production processes (welding, moving and testing parts) in a 5x5m² production cell. The robust, optical wireless transmission is based on spatial diversity; in other words, data is sent and received simultaneously by several LEDs and several photodiodes. The system can transmit data at more than 100 Mbit/s and five milliseconds latency.

Modern production technologies in the automobile industry must become more flexible in order to fulfil individual customer requirements.

Im Focus: Sharp images with flexible fibers

An international team of scientists has discovered a new way to transfer image information through multimodal fibers with almost no distortion - even if the fiber is bent. The results of the study, to which scientist from the Leibniz-Institute of Photonic Technology Jena (Leibniz IPHT) contributed, were published on 6thJune in the highly-cited journal Physical Review Letters.

Endoscopes allow doctors to see into a patient’s body like through a keyhole. Typically, the images are transmitted via a bundle of several hundreds of optical...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Munich conference on asteroid detection, tracking and defense

13.06.2018 | Event News

2nd International Baltic Earth Conference in Denmark: “The Baltic Sea region in Transition”

08.06.2018 | Event News

ISEKI_Food 2018: Conference with Holistic View of Food Production

05.06.2018 | Event News

 
Latest News

Graphene assembled film shows higher thermal conductivity than graphite film

22.06.2018 | Materials Sciences

Fast rising bedrock below West Antarctica reveals an extremely fluid Earth mantle

22.06.2018 | Earth Sciences

Zebrafish's near 360 degree UV-vision knocks stripes off Google Street View

22.06.2018 | Life Sciences

VideoLinks
Science & Research
Overview of more VideoLinks >>>