Essays in empirical corporate finance
Demirtaş, Gül (2014) Essays in empirical corporate finance. [Thesis]
This dissertation contains two articles, each of which investigates whether the attitude and behavior of directors and executives during the merger negotiation process affect merger outcomes. Both articles rely on a unique and extensive dataset, manually extracted from SEC filings. In the first article, using this dataset and merger-related news articles, I detect if a social tie between directors or executives of merging firms is effective during the making of the deal. The results show that the existence of a social tie significantly reduces abnormal announcement returns accruing to the combined entity and to the acquirer firm. This adverse effect is driven by deals in which the tie is distant. Social ties also significantly decrease the likelihood of receiving competing bids. Moreover, connected deals, particularly those involving close ties, are associated with lower financial advisory fees, a shorter negotiation period and a higher likelihood of target director retention. The second article focuses on the target board’s meeting activity from the date of the first contact with the acquirer to the announcement date. Rapid involvement of the target board in merger talks increases target shareholder returns and premiums, especially when shareholders have weak control over their firms and are more in need of board protection. In contrast, the number of target board meetings does not appear to affect shareholder wealth. Both early board involvement and a high board meeting count reduce the likelihood of an excessive target termination fee. Furthermore, early board involvement hurts target CEOs by decreasing their retention likelihood.
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