The impact of competition, deal size, and the information content of deal withdrawals on shareholder gains in mergers and acquisitions

This thesis examines the wealth effects of mergers and acquisitions and the size of the corresponding control premia in three in-depth analyses. As previous evidence highlights the significance of different degrees of M&A competition across countries, the first empirical analysis of the thesis studies varying levels of takeover competition within domestic U.S. industries, focusing on its impact on acquisition premia and announcement returns to shareholders of the acquiring firm. Several measures of industry-level M&A activity and value are used to determine the degree of (latent) takeover competition within 49 different Fama/French industries. The documented results show that acquirers in high- competition (low-competition) M&A industries submit significantly higher (lower) offer premia and lose significantly more (less) value for their shareholders around the deal announcement. These robust findings suggest that acquiring firms facing high degrees of industry-level takeover competition are likely to suffer from the 'winner's curse'. The second analysis of the thesis exammes contradictory predictions regarding the association between the acquisition premium and the size of the target firm. It documents a robust negative relation between control premia and target size, indicating that acquirers tend to pay less for large firms and not more, as conventionally assumed. Yet, acquisitions of large targets still destroy more value for acquirers and result in sharper increases in their idiosyncratic return volatility around the deal announcement, implying that investors perceive these deals as more uncertain projects. Acquirers of large firms continue to underperform small target acquirers in the long-run in terms of stock market and operating performance. Thus, despite the payment of significantly lower premia, large deals fail to deliver the assumed benefits, a finding that is attributed to their complexity. The final empirical analysis focuses on the information content of withdrawn M&A deals and examines the association between the rationale behind deal withdrawals and the quality of managerial investment decisions in corporate control transactions. Results show that CEOs, who demonstrate managerial restraint and abandon overvalued M&A bids (Value-CEOs), are able to create significant (short- and long-term) value in their firm's return to the market for corporate control. As such, the withdrawal motive of Value-CEOs provides credible II Abstract (long-lasting) information about the degree of managerial focus on shareholder value creation and plays an essential role for investors in building expectations towards future managerial investment decisions. Yet, investors do not differentiate pre-withdrawal deals by Value-CEOs from any other M&As. Thus, deal cancellations offer investors access to novel CEO-specific information, allowing the market to learn about managerial idiosyncrasies. This analysis demonstrates that deal withdrawals are important information-generating corporate events and that investor knowledge about managerial qualities and motives in M&A deals can affect returns to acquiring shareholders in future transactions. IIIEThOS - Electronic Theses Online ServiceGBUnited Kingdo