Excess Control Rights and Corporate Acquisitions
Université de Cergy-Pontoise
May 20, 2010
Paris December 2010 Finance Meeting EUROFIDAI - AFFI
The typical French listed company exhibits a concentrated ownership structure with the largest shareholder typically holding more voting rights than cash flow rights. This paper studies the acquisitions made by French listed firms over the period 2000 through 2009 and investigates how such ownership characteristics affect acquirer abnormal returns and acquisition activity. Abnormal returns around acquisitions are decreasing as the wedge between voting and cash flow rights increases. This result suggests that controlling shareholders use corporate acquisitions as a means of extracting private benefits at the expense of minority shareholders. The well-documented valuation discount associated with the divergence between voting and cash flow rights could be explained by less efficient acquisitions. The paper also shows that firms whose largest shareholder holds significant excess control rights are less likely to engage in M&A activity. This last finding raises the issue of sample selection bias, which has not been taken into account in earlier studies.
Keywords: Ownership Structure, Excess Control Rights, Corporate Acquisitions, Acquirer Returns, Bidding Likelihood
JEL Classification: G32, G34Accepted Paper Series
Date posted: March 15, 2012
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