Acquirers' gains, implications of information asymmetry, value of cash and capital controls

Rights statement
Awarding institution
  • University of Strathclyde
Date of award
  • 2021
Thesis identifier
  • T15815
Person Identifier (Local)
  • 201253964
Qualification Level
Qualification Name
Department, School or Faculty
  • Merger and acquisition (M&A) is one of such crucial investment decisions and draws the attention not only of shareholders but also of other stakeholders. Although there are voluminous studies on the wealth creations through corporate acquisitions, the results regarding whether engaging in such activities can enhance the value of the acquirer's shareholders remain inconclusive as the outcome depends on several factors with multi-directional influences. This thesis focuses on three issues that have received relatively little or no attention, namely (i) information asymmetry, (ii) marginal value of cash balance, and (iii) the capital control policy of the acquirers' domicile. The broad research objective of this thesis is to examine whether these three issues can affect the value of acquirers and if so how value can be created.;In the first empirical chapter (Chapter 2), we examine how information asymmetry between acquiring firms' corporate insiders and the market affects the acquirers' gains and takeover premium in the US market. Controlling for the information asymmetry of target firms and other determinants, we find a negative correlation between acquirer's information asymmetry and takeover premium in both stock and cash deals. There is no evidence to support that acquirers can benefit from exchanging their overvalued stocks for target firms' assets in the short- and long term. Instead, overvalued acquirers suffer greater loss, particularly when they have high levels of information asymmetry. However, our findings suggest that acquirers with high information asymmetry and knowledge of high takeover synergies can enhance their shareholders' value if they engage only in stock-financed acquisitions. Lastly, when the effect of self-revaluation and equity financing are alleviated, we can observe the improvement in the true gain of acquisitions.;The second empirical chapter (Chapter 3) posits that the marginal value of cash to the acquirer should be a better measure, relative to the nominal value of the cash balance, in explaining the acquirer's choice of method of payment and the value implications of corporate cash holdings. The results of US M&A confirm that the payment method choices of bidder managers are related to the marginal value of cash held by acquirers one year prior to the bid announcement. Acquirers engaging in stock bids have a relatively high marginal value of cash than those who choose to pay with cash. Further, we document that value of cash held by acquirers is not static across time and managers are good at timing the market of value cash. Lastly, we report that with the right payment decision corresponding to the value of cash, bidder managers can create value for their shareholders.;The third empirical chapter (Chapter 4) explores the effect of capital control of acquirers' domicile on their gains from cross-border deals. By following the springboard strategy, we predict that managers can enhance their shareholders' wealth and receive higher announcement period returns. We find evidence to support our prediction that cross-border flows and gains are driven by purchasing target firms resided in relatively low capital control countries. These gains can be further explained with the accessibility of cheaper capital and better risk diversification.
Advisor / supervisor
  • Tang, Leilei
  • Paudyal, Krishna
Resource Type
Date Created
  • 2021
Former identifier
  • 9912955189202996