Ownership concentration & acquiring firm M&A returns : an empirical analysis of acquirer returns in Norway

This thesis studies the relationship between ownership concentration and acquiring firm M&A announcement returns. In agency literature, ownership concentration has been proposed as an effective governance mechanism. The main benefit of ownership concentration is improved corporate performance due to monitoring and intervention by large shareholders. However, large shareholders may impose costs if they act only in their self-interest. The net effect of ownership concentration is therefore unclear. While there are several studies that analyse the effect of ownership concentration on operating performance and valuation, to my knowledge, no previous study has examined its effect on acquiring firm M&A announcement returns. M&A announcements present a unique opportunity to examine the effect of ownership concentration as M&A’s intensify the agency costs between managers and shareholders, and the valuation effects are easily observable. Using an event study, I analyse a sample of 373 completed acquisitions by Norwegian public companies from 1997 through 2016. Different levels of ownership concentration are taken into consideration as the fraction of shares owned by the largest shareholder may affect the result. I find evidence of an insignificant relationship between large minority shareholders (shareholders that own more than 20% and less than 50% of firm’s share) and acquiring firm announcement returns, and a significantly negative relationship between controlling majority shareholders (shareholders that own more than 50% of a firm’s share) and acquiring firm announcement returns. The results indicate that extreme ownership concentration due to controlling majority shareholders is associated with a negative effect on acquiring firm announcement returns. To test if the negative relationship is related to the type of owner, I compare private controlling owners (active owners) with the state (passive owner). The results of this test indicate that there is no difference in announcement returns when the controlling majority owner is a private owner or the state. Overall, the results raise the question as to whether there are benefits of ownership concentration and I conclude that the negative relationship is a result of inadequate monitoring by self-serving, controlling owners. Note: The terms “bidder” and “acquirer” are used interchangeably