Governance Through Trading on Acquisitions of Public Firms

WFA 2013 Lake Tahoe Meetings Paper

46 Pages Posted: 12 May 2013 Last revised: 31 Jan 2016

See all articles by Eric C. Chang

Eric C. Chang

University of Hong Kong - School of Business

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Xiaorong Ma

University of Hong Kong - School of Business; National Taiwan University - College of Management

Date Written: January 28, 2016

Abstract

We identify an important channel, acquisitions of public targets, via which governance through trading (GTT) improves firm values. The disciplinary effect of GTT on the announcement returns is more pronounced for acquiring firms with higher managerial wealth-performance sensitivity, moderate institutional ownership concentration, and after Decimalization. Our results are robust to using two instrumental variables and controlling for E- and G-index and measures of price informativeness. We conduct several exercises to rule out alternative explanations, such as institutional superior information, investor activism, and momentum. Results also show that the disciplinary effect of GTT only exists for less-financially-constrained firms and non-all-cash M&As.

Keywords: governance through trading, mergers and acquisitions, public targets, wealth performance sensitivity, Decimalization

JEL Classification: G20, G30, G32

Suggested Citation

Chang, Eric Chieh C. and Lin, Tse-Chun and Ma, Xiaorong, Governance Through Trading on Acquisitions of Public Firms (January 28, 2016). WFA 2013 Lake Tahoe Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2263837 or http://dx.doi.org/10.2139/ssrn.2263837

Eric Chieh C. Chang

University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Tse-Chun Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Xiaorong Ma

University of Hong Kong - School of Business ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan

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