Cosmetic mergers: the effect of style investing on the market for corporate control
Author: Massa, Massimo ; Zhang, LeiINSEAD Area: FinanceIn: Journal of Financial Economics, vol. 93, no. 3, September 2009 Language: EnglishDescription: p. 400-427.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: We study thei mpact of "style investing" on the market for corporate control. We argue that the choice of the bidder is influenced by the fact that the merge with a firm that belongs to an investment style more popular with the market may boost the bidders value. By using data on the flows in mutual funds, we construct a measure of popularity, which relies directly on the identification of sentiment-induced investor demand, rather than being a direct transformation of stockmarket data. We show that differences in popularity between bidder and target help to explain their pairing. The merger with a more popular target generates a halo effect from the target to the bidder that induces the market to evaluate the assets of the less popular bidder at the (inflated) market value of the more popular target. Both bidder and target premiums are positively related to the difference in popularity between the target and the bidder. However, the targets ability to appropriate the gain is reduced by the fact that its bargaining position is weaker when the bidders potential for asset appreciation is higher. We document a better short- and medium- term performance of less popular firms taking over more popular firms. The bidder managers engaging in these cosmetic mergers take advantage of the window of opportunity induced by the deal to reduce their stake in the firm under convenient conditions| Item type | Current location | Call number | Status | Date due | Barcode | Item holds |
|---|---|---|---|---|---|---|
|
Europe Campus | Available | BC008740 |
Ask Qualtrics
We study thei mpact of "style investing" on the market for corporate control. We argue that the choice of the bidder is influenced by the fact that the merge with a firm that belongs to an investment style more popular with the market may boost the bidders value. By using data on the flows in mutual funds, we construct a measure of popularity, which relies directly on the identification of sentiment-induced investor demand, rather than being a direct transformation of stockmarket data. We show that differences in popularity between bidder and target help to explain their pairing. The merger with a more popular target generates a halo effect from the target to the bidder that induces the market to evaluate the assets of the less popular bidder at the (inflated) market value of the more popular target. Both bidder and target premiums are positively related to the difference in popularity between the target and the bidder. However, the targets ability to appropriate the gain is reduced by the fact that its bargaining position is weaker when the bidders potential for asset appreciation is higher. We document a better short- and medium- term performance of less popular firms taking over more popular firms. The bidder managers engaging in these cosmetic mergers take advantage of the window of opportunity induced by the deal to reduce their stake in the firm under convenient conditions
Digitized
There are no comments for this item.