Mega-deal performance : evidence from the European M&A market : an empirical analysis of acquirer returns before and after the financial crisis

(1)

Mega-deal performance: evidence from

the European M&A market

An empirical analysis of acquirer returns before and after the financial crisis

Name: W.P.P. Smit

Student number: 10789332

Supervisor: Dr. J.E. Ligterink

BSc Economics and Business, Finance and Organization Faculty of Economics and Business

(2)

Statement of originality

This document is written by Wouter Smit who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is solely responsible for the supervision of completion of the work, not for the contents.

(3)

Abstract

This paper provides a comparison of acquirer shareholder returns before 2009 and after 2009 in case of mega-takeover deals in the European market that are priced over 500 million USD. It is expected that acquirer returns have shifted from negative to positive since the financial crisis due to increased regulation and improved internal control of companies. Using a sample of 125 megadeals within the period of 2003 to 2017 that covers 17 European countries, the short-term wealth effects of takeover announcements for shareholders are analyzed using daily stock data. The results shows that the bidder CAAR is -0.97% in the period from 2003 to 2008 and turned to a significant positive value of 1.37% in the period from 2010 to 2017. The difference between the CAARs is statistically significant at the 5% level and provides evidence for a documented shift in acquirer returns, with the financial crisis being the turning point. Using the World Governance Indicator for Regulatory Quality, the quality of regulation is surprisingly found to have a negative effect on the bidder CAR. However, when

controlling for regulatory quality, the positive relation between bidder CARs and acquisitions in the period 2010to2017 becomes stronger and significant at the 1% level. Finally, contradicting existing literature, cross border deals are found to positively affect the bidder CAR, which potentially is an effect of the harmonization of the European takeover market since the financial crisis.

(4)

1. Introduction

The negotiation surrounding the takeover of the Dutch company Akzo Nobel by The Carlyle Group, led to a takeover deal of €10.1bn reported by the Financial Times.1_{This megadeal between the two} companies is one of many, since megadeal activity is currently breaking records globally. The

megadeals are spurred by quickening global growth and robust business confidence, where companies feel pressure to validate their values. Especially in Europe, where deal making has accelerated since the fifth merger wave, an increase in megadeals is found according to the Financial Times.

Interestingly, a widely accepted fact within corporate finance is that value is destroyed more often than created for acquiring firm shareholders in mergers and acquisitions (M&A), particularly in case of high deal values (Schlingemann & Stulz, 2005; Martynova & Renneboog, 2011). Although takeovers tend to be value-enhancing activities in general, this value-generation is mainly attributed to the shareholders of acquiring firms. Especially mega-deals priced over 500 million USD and acquisitions of public companies are continuously found to have a detrimental effect on acquirer shareholder returns.2_{Yet, these types of deals are still pursued often.}

There are several explanations for negative wealth effects in case of large public M&A deals. These explanations are mainly based on agency problems, which result in managerial entrenchment or empire building. In these instances management is inclined to pay greater premiums when bidding for large target firms, as this leads to higher private benefits (Harford & Li, 2007; Grinstein & Hribar, 2004). This is, however, at the expense of shareholder value generation. Besides agency problems, cultural differences between acquiring and target firms increase integration complexity and result in post-merger integration issues. This leads to a cost increase and impedes generating synergy value, which negatively affects the wealth creation from the takeover (Alexandridis et al., 2013). M&A are the largest known form of corporate investment and are of great importance for corporate strategies. Given that publicly listed firms are bound to periodical disclosure and are subject to extensive publicity, it is surprising that acquiring firms are able to pursue wealth destroying deals and fail to generate value to their shareholders (Alexandridis et al., 2017). Previous research on the European takeover market mainly focuses on the fifth (1993-2000) and sixth (2003-2008) merger waves. These are the periods in which European M&A activity increased to levels similar to those of the US (see figure 1 in the Appendix). M&A activity has risen since the financial crisis, yet research on this period is limited. Martynova and Renneboog (2012) conclude that a common feature of merger waves is that they occur in periods of economic recovery and coincide with regulatory reforms. The period after the

1

https://www.ft.com/content/a0b4c0ce-327c-11e8-ac48-10c6fdc22f03 2_{https://www.ft.com/content/c740d8b6-5d47-11e5-9846-de406ccb37f2}

(6)

financial crisis is particularly of interest because of the improved regulation on takeovers that developed after the financial crisis.

The financial crisis that started at the end of 2008 resulted in increased attention to internal control mechanisms, executive compensation, risk management processes and corporate cultures (Gupta & Leech, 2015). The improvement of internal control was a necessity as inadequate monitoring of executives by boards of directors and institutional failings to govern risk management are among the causes of the financial crisis (Conyon et al., 2011). Addressing the financial crisis and corporate governance regulations were both the central topic of the year 2012 in Germany and many other European countries. On December 12th_{2012, the European Commission presented its Action Plan on} European Company Law and Corporate Governance (Hopt, 2015) to enhance transparency and shareholder involvement through increased and improved disclosure and improving internal control mechanisms. Besides new regulation, the European Takeover Directive (ETD) of 2004-2006 focuses on regulating the European takeover market and addressing agency costs and integration problems to create a level playing field in the European market. Although the implementation of the ETD was finalized in 2006, the effects of its implementation are hardly measurable before the financial crisis. A report written on the effectiveness of the ETD five years after implementation states that it has

resulted in harmonization of the European market of corporate control (Clerc et al., 2012). The Directive has had a positive impact on acquirer cumulative abnormal returns (p. 127) and simplified the post-merger integration process by decreasing cultural differences.

The improvements in internal control and a decrease in complications of post-merger integration have the potential to positively influence the strategic selection of takeovers, stimulate synergy justification as a motive, and smoothen the post-merger integration process. The regulatory reforms altogether increase the focus of management on creating shareholder value, instead of pursuing personal gains and objectives. Alexandridis et al. (2017) are the first to look into the performance of mega deals in the United States and find robust evidence for a shift from negative acquirer returns pre-2009, to positive acquirer returns post-2009. They argue that the findings are in line with an improvement in the quality and drivers of M&A that resulted from US regulation after the financial crisis. Based on the previously stated developments, the following research question is formulated: “Do mega-deal takeover announcements after 2009 generate greater shareholder value compared to similar

announcements before 2009?” A sample of 125 completed takeover deals with a value greater than USD 500 million in the period from 2003 to 2017 is studied to provide an answer to this question. The returns surrounding the announcements of takeovers before 2009 and after 2009 are compared in order to find evidence for a shift in acquirer returns. By doing so, this paper aims to contribute to existing literature in two ways. First of all, research on the European takeover market is limited and focuses on the fifth and sixth merger wave. The developments in corporate governance imply the need for a

(7)

detailed analysis of acquisitions investments post-2009. As mega-takeover deals are usually found to destroy value on a large scale, this new environment should especially affect them. Secondly, the results from this research can provide further insights whether the documented shift in acquirer returns is limited to the US or not. The results have the potential to confirm the findings of Alexandridis et al (2017) and the potential to confirm a change in the conventional knowledge on wealth creation for acquirer shareholders in takeovers.

The rest of the paper is structured as follows. Chapter two provides a theoretical background based on previous research and existing literature. This is followed by a description of the data in chapter three and the methodology in chapter four. The results of the event study and regression analysis are presented in chapter five, and finally chapter six concludes.

(8)

2. Literature Review

In this section existing literature is used to explain what effect takeover motives and corporate governance developments have on acquirer gains in takeovers. Firstly, the main theories on motives for M&A activity will be explained, followed by the corporate governance developments and their impact on bidder wealth effects in Europe. Finally, previous research on the European takeover market and mega-deal activity is discussed.

2.1 Takeover motives

M&A are among the largest and most observable forms of corporate investment. Takeovers allow firms to combine resources in order to accomplish an objective and therefore are part of the strategy of a firm. Takeovers are implemented strategically as a method of firm survival and such corporate deals provide an alternative way to grow (Bösecke, 2009). There are multiple ways in which M&A prove to be valuable to the management of firms. Several main theories are established on the motives for takeovers, which are categorized in value-creating and value-destroying theories.

2.1.1 Value increase through synergies as a motive

Looking from a perspective of value creation, takeovers occur because they generate synergies between the target firm and the acquirer firm, which in turn increases the value of the total firm (Hitt et al., 2001). Synergies occur in the form of financial and operative synergies, as well as managerial synergies. The latter is the situation in which the expertise of the target management complements management of acquiring firms, resulting in additional value (Martynova & Renneboog, 2005). Three theories related to synergies explain how firm value and shareholder wealth is increased due to takeovers. Firstly, the efficiency theory states that efficiency gains are achieved through economies of scale and scope (Mukherjee et al., 2004). These are so-called operation synergies. After a takeover, firms possess new tangible and intangible assets that improve efficiency in operations and are found to be a significant source of gain. Accordingly, Pitelis (2007) states that the productive opportunity of a firm entails the use of tangible and intangible assets. The long-term profitability of the firm is related to the growth in productive opportunity of the firm, thus takeovers are needed for assets to stimulate growth and increase firm value by obtaining new assets.

Secondly, gains through managerial synergies are explained in the theory of corporate control. Weston et al. (2004) state that there always is another management team willing to acquire a firm that is underperforming. Through the takeover, the new management can put the assets of the acquired firm to use in a way that improves their performance and results in synergies. Finally, takeovers can be

(9)

motivated by the increase in market power that results from the deal, as the firm is likely to gain market share in the transaction (Cefis et al., 2008). The market power theory suggests that an increase in market power leads to collusive synergies, where the firm develops an improved ability to extract consumer surplus. According to Besanko (2009), market power allows for deterring potential entrants as well, which can result in a long-term source of gain for the firm. To summarize, expected synergy value motivates management of the acquiring firm to engage in a takeover deal, as this should lead to gains for their shareholders.

2.1.2 The agency motive and value destruction

Takeovers often lead to shareholder value destruction and some suggest that this is because a share of takeovers is primarily motivated by the self-interest of acquirer management. This is known as the agency motive (Berkovitch and Narayanan, 1993). As there is a separation of ownership and control between shareholders and top-management, the objectives of the parties involved differ. Shareholders aim for firm value-maximization in order to realize the highest possible profits and need to use incentives to ensure that the interests of management are aligned with their own (Thomson & Conyen, 2012). However, the agency motive suggests that takeovers occur because the welfare of the acquirer management is enhanced at the expense of acquirer shareholders. Two main explanations are put forward to explain such actions of top-management.

First of all, Shleifer and Vishny (1989) argue that mergers can destroy value because managers stimulate investments that decrease the risk of their own replacement. Without necessarily looking at the wealth effects for their shareholders, management engages in managerial entrenchment. In this case managers do not pursue firm value maximization, instead they entrench themselves through increasing their individual value to the firm. Entrenchment mainly explains how managers ensure their position in firms to achieve more power, wealth and a better reputation and lose eye for shareholder value creation. Secondly, empire building suggests that managers are focused on investments that lead to the growth of their firm’s revenues (Jensen, 1986). Managers have incentives to stimulate firm growth beyond the optimal size, because compensation is positively related to the growth of firm sales. Goergen and Renneboog (2004) state accordingly that managers may be motivated to stimulate corporate growth rather than corporate value, as private benefits for management are likely to grow with firm size. Both in case of managerial entrenchment and empire building negative wealth effects are expected for shareholders as the management does not pursue shareholder value-maximization and inefficient deals are completed. Corporate Governance aims to resolve agency problems and align the interests of shareholders and management (Thomson and Conyon, 2012), which is explained in the next section.

(10)

2.2 Corporate Governance in Europe

Corporate Governance defines the relationship between a company, its board, shareholders and other stakeholders to establish goals and strategies. In other words, corporate governance forms the system by which companies are directed and controlled (Thomson & Conyon, 2012). Corporate governance provides a framework of rules and practices by which a board of directors ensures transparency, accountability and fairness in the firm. Although Corporate Governance systems in Europe differ as they originate from different legal families, the process of corporate governance convergence has lead to a decrease, or even elimination, of significant effects of the differences between them (Drobetz & Momtaz, 2016). According to Yoshikawa and Rasheed (2009) corporate governance convergence implies “an increasing isomorphism in the governance practices of public corporations from different countries” (p. 389). The convergence can be further broken down into ‘convergence in form’ and ‘convergence in function’. Convergence in form is driven by regulation and refers to changes in corporate governance at the national level. Additionally, convergence in function is decentralized and is the result of market-driven changes at the firm level (La Porta et al., 2000). In general, corporate governance convergence decreases post-merger integration complexities. According to Shrivastava (1986), post-merger integration involves the integration of corporate cultures, performance and reward systems, and organizational systems. Corporate governance convergence has reduced differences between different governance systems in Europe and in turn reduced differences between corporate cultures. As this simplifies the post-merger integration process, the probability of delivering the expected synergies and generating positive shareholder value is increased.

The European Takeover Directive (ETD) is an important example of convergence in form in Europe, which spurs intra-European cross-border M&A activity by harmonizing European takeover law.3 Through specific rules and important disclosure requirements, the Directive tackles the three major economic problems that are related to takeovers: agency costs, pressures to tender and free riding by shareholders (Clerc et al., 2012). The ETD stimulates economic integration by facilitating M&A transactions and producing greater efficiencies. Dissanaike et al. (2015) find that the countries that managed to significantly improve shareholder rights in response to the ETD experienced a significant increase in bidder wealth effects. Furthermore, Drobetz & Momtaz (2016) researched the effects of the formal convergence through the ETD on European M&A deal characteristics. Their results indicate several important developments: the ETD has led to an increase of cash-financed transactions and a trend towards a smaller number of hostile takeovers is noticed. These developments are expected to positively affect bidder returns. Furthermore, the effects of legal origins on acquirer returns faded after the ETD meaning that Europe has shifted towards an effective harmonized takeover law, which smoothens the post-merger integration process, reducing time and costs, and increasing returns.

(11)

Besides governance itself, the quality of law enforcement affected acquirer returns after the introduction of the ETD, as managers make better acquisitions if they fear to be sanctioned for opportunistic self-dealing (Djankov et al., 2008). Since the ETD leaves enforcement of the takeover law to its member states, a high quality of law enforcement is crucial for bidder wealth effects. Drobetz & Momtaz (2016) find that the quality of law enforcement has a significant positive effect on bidder wealth effects post-ETD. They conclude that their results prove that governance convergence in form has significant positive effects on acquisition efficiency and acquirer returns. Additionally, a more recent development of corporate governance convergence is the Action Plan of 2012 that focuses on solving deficiencies in financial institutions and weaknesses among listed companies (Hopt, 2015). The plan enhances transparency through requirements on disclosure of the board’s policy and non-financial risk management, as well as improved reporting on corporate governance.4_{The plan} enhances the involvement of shareholders by encouraging improved shareholder supervision of remuneration policies and related-party transactions. Given that management is obliged to facilitate higher transparency and shareholders play a greater role in monitoring management, the agency motive becomes less likely to pursue.

2.3 Prior research

M&A activity in Europe has seen a stark increase since the fifth merger wave and currently resembles takeover activity of the US. Although M&A activity levels are comparable now, clear differences between Continental European market and the US and UK are evident. The Continental European takeover market is characterized by relatively weak investor protection (LaPorta et al., 1998) and a more concentrated ownership structure (Faccio & Lang, 2002). In Continental Europe firms often tend to have one controlling shareholder, whereas in the US and UK ownership is dispersed and shares are widely held (Thomson & Conyon, 2012). The most relevant articles from prior research are discussed to give provide insights in characteristics of deals and acquirer performance in the European M&A market and on mega deal performance.

2.3.1 European M&A market

First of all, Martynova and Renneboog (2006) create a comprehensive overview of the European takeover market provide in their paper. With a sample of 2,419 takeover announcements in 28 European firms from the period 1993-2001, they analyze the announcement effects for both targets and bidders in the fifth merger wave. They supplement the data with characteristics of the takeover transactions, including the type of takeover, method of payment and the takeover strategy (focus or diversification). In this period, overall announcement effects of 9% and 0.5% are found for target and

(12)

acquiring firms respectively. Takeover announcement of public targets result in a negative return of -0.1% however. Abnormal returns of 12% are found in all-cash offers, which is significantly higher than the returns in all-equity offers.

Secondly, Goergen and Renneboog (2004) focus on shareholder wealth effects in relation to whether a takeover bid is domestic or cross-border of large M&A deals. A sample of 228 M&A deals is used from the period 1993 until 2000 and they find large announcement effects of 9% for target firms and an announcement effect of 0.7% for acquiring firms. Cash payments are found to have a significant positive effect of 10%, whereas all-equity bids generate a return of 6%. The authors expected cross-border operations to trigger higher wealth effects, but the opposite was found: domestic takeovers generate greater wealth effects. Finally, the results suggest that synergies are the prime motivation for bids, as both targets and bidders experience positive wealth effects. These findings are supported in the research of Martynova & Renneboog (2011), which looks into the performance of large, medium and small corporate takeovers. Similar target and bidder wealth effects are found and the

announcement of bids for public firms result in negative returns of 0.12%.

2.3.2 Research on mega-deals in the US

Alexandridis et al. (2013) specifically examine the relation between premiums paid in acquisitions and deal size. Using a total sample of 3691 takeover deals in the period from 1990 to 2007. Their results show that large firms are acquired at a discount when compared to small ones, as overpayment is found to be lower for large targets. A given possible explanation is that this is due to higher uncertainty in case of larger takeovers, which results in acquirers making less generous offers. Although larger targets are bought at a discount, acquisitions of larger firms destroy more value for acquiring shareholders. This is explained by the greater complexities in the post-merger integration, making it more difficult for acquirers to attain synergy values. All in all, they conclude that large targets do not lead to value destruction due to overpayment, but rather due to integration complexities and uncertainty.

Furthermore, Alexandridis, Travlos and Antypas (2017) show in their research on mega deals in the US takeover market that a shift has occurred in the returns to shareholders of acquiring firms in case of takeovers. Using a sample of 3,150 completed M&A deals valued at least $500 million between 1990 and 2015, they find robust evidence that acquisition gains during the period from 2010 to 2015 have improved and turned positive when compared to acquisitions before 2009. Along with the ability to realize deals with a superior strategic fit with significantly higher synergy gains, acquirers have been able to capture more of this added value for their own shareholders. These results hold around the deal announcement and in the long run. The shift is most apparent when public targets are

(13)

involved in the deals as such M&A deals generally generate negative wealth effects for shareholder bidders. They argue that the findings support the quality-enhancing role of corporate governance in acquisition decisions and that this is a favorable ripple effect emanating from the financial crisis.

2.4 Hypotheses

The hypothesis of the main relationship of interest is presented based on the literature review. In this paper it is aimed to find evidence for a shift in acquirer returns with the financial crisis being

considered as the turning point. It is hypothesized that acquirer shareholders receive negative returns from takeovers in the period from 2003 to 2008. Corporate governance developments led to the improvement of internal control mechanisms, resulting in a decrease of the agency motive as a takeover motive. Greater involvement of shareholders increases pressure for managers to pursue deals that create synergy value. Furthermore, the ETD and Action plan of 2012 led to integration of the European market of corporate control, simplifying post-merger integration and reducing costs of a merger. Based on these findings it is hypothesized that takeovers in the period from 2010 to 2017 provide acquirer shareholders with positive returns.

H1: acquisitions in the period post-2009 generate positive returns for acquirer shareholders, which is a result of increased governance regulation since the financial crisis.

Secondly, a higher quality of regulatory enforcement on national level should result in effective implementation of new governance regulation and in turn positively affect bidder wealth effects. Therefore the following hypothesis is formulated:

H2: the quality of regulation on national level increases the effectiveness of the imposed regulations and therefore positively affects bidder shareholder wealth effects.

(14)

3. Data and summary statistics

In this chapter the data sources and the applied restrictions to find the samples for the research are presented. Finally, summary statistics of the data are provided.

3.1 Thomson One and DataStream

The Thomson One database was used to find a sample of mergers and acquisitions within the

European market. The database is formerly known as SDC platinum and is a reliable source and often consulted in M&A research. The following criteria hold for the sample used:

1. The deal must be completed.

2. The deal value needs to be greater than 500 million USD. 3. Both target and acquirer are publicly listed firms.

4. Both the target and acquirer are located in Europe.

5. Financial institutions with SIC codes ranging from 6000-6999 are excluded due to special regulations that hold for financial firms.

6. The minimum stake acquired is 50% to ensure a shift in control. 7. The takeover was announced within the period from 2003 to 2017.

The sample was further reduced due to missing stock data in DataStream as it makes calculations on the announcement returns impossible. The final sample contains 125 takeover deals in Europe between 2003 and 2017 with a deal value greater than 500mil USD. DataStream is a comprehensive database for stock data, international business information and other macroeconomic data. DataStream provided the stock data for the acquiring firms for the estimation window and event window.

Furthermore, data on total assets, leverage and market-to-book values were found in DataStream. Finally, the market index used for the calculations in the event study was retrieved from DataStream.

3.2 Summary Statistics

Of the total sample of 125 takeovers, 73 (58.40%) deals were announced before 2009 and 43 (39.20%) after 2009, as shown in table 1. The deal volumes are more evenly divided over the two periods, 52.60% of total deal volume is attributed in the period pre-2009 and 47.08% in the period post-2009.

Looking at the deal characteristics within the sample, 45.60% of the deals are cross border. This is higher than the percentage usually found, which is around 24% (Martynova & Renneboog, 2011). Furthermore, 59.20% of the deals are related and 59.20% are tender offers. Regarding the method of payment, 42.40% of the deal is financed with all cash, 26.40% are fully financed with stock, and 31.20% of the takeovers are paid using a mix of stock and cash. When looking at the subsample

(15)

pre-2009, 46.58% of the deals are cross border, 63.01% are industry related and 69.86% of the deals are tender offers. In the subsample post-2009, 46.94% of the deals are cross border, 55.10% are industry related and 42.86% of the deals are tender offers. When comparing the subsamples, it is surprising that the percentage of cross border deals is similar, since the ETD is expected to stimulate cross border deals. Furthermore, a decrease in tender offers has occurred. This can be explained from a point of view that management focus on pursuing takeovers that are value creating. As management carefully revises corporate decisions, it is less likely that they will have to acquire a firm through a tender offer and can close a deal with the management of the target firm instead as it will create value for them as well.

Table 1: the annual deal counts and deal volumes of the sample (own data).

The sample contains a total of sixteen countries from continental Europe and the UK. The United Kingdom makes up for 29.60% of the total sample, which is a large share when compared to France as number two (17.60%) and the Netherlands as number three (8.80%). This is in line with previous literature, as the UK is found to have a more active and aggressive takeover market (Martynova & Renneboog, 2008). Table 1 in the appendix shows the number of deals per country and the percentages of the total, figure 2 shows a graphical display of this division.

Year Deal Count

Deal Volume (million USD) 2003 6 17,238.87 2004 11 61,922.25 2005 17 59,356.84 2006 17 93,303.39 2007 16 46,716.04 2008 6 25,380.69 2009 3 1,858.63 2010 7 9,335.29 2011 6 8,117.38 2012 2 4,866.87 2013 4 11,008.27 2014 10 31,763.83 2015 9 190446.622 2016 6 4,162.97 2017 5 12,328.05 Total 125 577,805.97 Pre-2009 58.40% 52.60% Post-2009 39.20% 47.08%

(16)

4. Methodology

4.1 Event Study methodology

An event study provides a powerful method to measure the effect that an event has on the returns that shareholders receive. This is due to the fact that an event will be reflected in security prices

immediately and therefore financial market data is useful to measure the economic impact that an event has (MacKinlay, 1997; de Jong, 2007). For this reason, an event study is used to analyze the wealth effect of takeover announcements on the returns for shareholders of acquiring firms. In this study the announcement day of the takeover is set as the event date. Following the studies of Kaplan and Weisbach (1992) and Martynova and Renneboog (2011), the estimation window ranges from 300 trading days prior to the announcement and ends 61 trading days prior to the announcement. This period eliminates the effect of the price run-up due to speculation two months before the

announcement date and therefore provides an accurate benchmark return. Cai, Song and Walkling (2011) state accordingly that actual announcement returns will not fully apprehend the wealth effects if the market anticipates the announcement of a takeover. For the event study abnormal returns are computed, which are defined as the difference between the realized return and the benchmark return (MacKinlay, 1997). The benchmark return is also called the normal return, which is a measure of the return in case no event would have occurred. In case an acquiring firm is involved in multiple

acquisitions occurring during the estimation period, the latter data point is removed in order to prevent disturbance in the data.

In this study, the market model is used for the event study, where the return of a market index is used as a benchmark return and multivariate normal stock returns are assumed (MacKinlay, 1997). The MSCI Europe index is used as market index. This index represents the performance of large and mid-cap equities across fifteen developed countries in Europe that are all included in the samples in this study. This index covers a large share of the European market and it is assumed that the developments measured on this index are also representative for the rest of the countries in Europe. In order to obtain the abnormal returns, the market returns have to be computed in order to create a benchmark. The market model measures the market return as:

𝐸(𝑅!") = 𝛼!+ 𝛽!𝑅!"+ 𝜀!" (3)

In the formula Rit and Rmt are the period-t returns on security i and the market respectively. 𝜀!" is the

(17)

the market. The abnormal returns are calculated using estimations of the parameters of equation (3). The expected return is subtracted from the actual return, which is stated in the following formula.

𝐴𝑅!" = 𝑅!"− (𝛼!!"#+ 𝛽!!"#𝑅!") (4)

In order to analyze performance around the event date, the abnormal returns are aggregated over the time period of the event. The cumulative abnormal returns are computed as follows for the different firms in the different event windows:

𝐶𝐴𝑅_! = !! 𝐴𝑅_!"

!!!! (5)

By aggregating the CARs, the Cumulative Average Abnormal Returns (CAAR) is obtained. The CAAR is used to provide a measure over the cross-section of the announcement dates and provides insights in the performance of a sample. The CAAR is defined by the following formula, where τ stands for an event window:

𝐶𝐴𝐴𝑅𝜏 = !

! 𝐶𝐴𝑅!" !

!!! (6)

The abnormal returns are estimated for a five-day event window: [-2,2]. Brown and Warner (1985) state that short-window event studies are effective in identifying abnormal performance also form a good indication of the performance of the takeover on a longer term. To see whether there is a shift in the returns for shareholders, it is tested whether the CAARs of the takeover deals post-2009 are positive and significantly different from the CAARs of the takeover deals pre-2009.

4.2 Regression analysis

Besides the event study, a linear regression analysis is used in order to test for the effects that certain variables have on the CAR. The main variable of interest is the dummy variable for whether a takeover is announced after 2009 or not. It is expected that takeovers in the period from 2010 to 2017 provide higher shareholder returns due to synergy values and efficiency of management as stated in the hypothesis in chapter two. Furthermore, to measure the effects of improvements in corporate governance, a World Governance Indicator of the World Bank is used: the indicator for Regulatory Quality (Kaufmann et al., 2011). This indicator captures the ability of governments to formulate and implement policies and regulations. Since the ETD and laws of the Action Plan need to be

implemented on national level, the higher the regulatory quality, the higher any positive wealth effects for bidder shareholders should be. Therefore, Regulatory Quality indirectly measures the effect of corporate governance and is expected to have a positive effect on bidder CARs. Furthermore, variables

(18)

are added to control for deal characteristics and firm characteristics. Definitions of the variables are stated in table 2 in the appendix.

4.2.1 Deal characteristics

Following the methodology of Kaplan and Weisbach (1992) it is determined whether takeovers are industry related or diversifying. Some argue that diversification enables firms to effectively use their scarce assets through diversifying into another industry, which can transform the asset into an increasing return to scale asset (e.g. Maksimovic & Philips, 2002; Arikan & Stulz, 2013). In the literature it is nonetheless often found that diversifying takeovers negatively affect the CAR due to post-merger integration problems and lack of knowledge on the new industry. Martynova and Renneboog (2006) find that the announcement of a related takeover generates significantly higher abnormal returns than the announcement of an unrelated takeover. They suggest that diversifying acquisitions involve more aggressive bidding are driven by other motives than shareholder wealth maximization. Therefore, the variable ‘Related’ is expected to positively affect the CAR.

Masulis, Wang and Xie (2007) find that the method of payment is related to the response of the stock market to acquisition announcements. It is stated that acquiring firms face significantly negative returns when takeovers are financed with equity. Franks, Harris and Titman (1991) argue that the means of payment is related to the assessment of the bidder’s valuation of the target value.

The announcement of an equity bid may signal that the management of the bidding firm believes that the shares of their firm are overpriced, so that investors adjust the share price of the bidder downwards (Moeller et al. 2004; Andrade et al., 2001). All-cash bids generate higher returns for both targets and bidders compared to all-equity acquisitions and are expected to have a positive effect on the CAR.

In order to account for the deal attitude, the variable ‘Tender Offer’ is added to the model. Deal hostility occurs rarely in the European area, especially when compared to the US (Thomson & Canyon, 2012). As there were only six hostile mergers or acquisitions in the entire sample, the variable deal hostility could not be included in the model. In a tender offer the bidder surpasses the board of the target firm and addresses the target shareholders directly with a tender offer (Martynova & Renneboog, 2006). In case of a hostile bid, the target share price instantly reflects an increase in the share prices. An offer made directly to target shareholders through a tender offer often results in a premium above the pre-announcement market price. Consequently, a tender offer is expected to decrease the returns to acquirer shareholders.

Furthermore, cross-border takeovers are expected to negatively influence shareholder wealth. Denis et al. (2005) state that cross-border mergers are a form of diversification and they find evidence that

(19)

cross-border takeovers have a negative effect on firm-valuation and on shareholder wealth creation. Finally, the deal size is accounted for. According to the findings of Alexandridis et al. (2013), larger public deals are subject to greater negative abnormal returns. Acquirers of large firms underperform in the long run when compared to firms that acquire small targets, both in terms of the stock market and operating performance. This indicates that realization of the assumed synergies fails, which has a detrimental effect on the performance of the acquiring firm. It is expected that the CAR decreases as the deal size increases.

4.2.2 Firm characteristics

Firstly, a variable to control for the firm size is added. Moeller, Schlingemann, and Stulz (2004) find robust evidence for a negative correlation between bidder size and the announcement-period CAR of the acquirer. This is interpreted as evidence that larger acquirers pay larger premiums on average and get involved in takeover deals that generate negative dollar synergies (Masulis et al., 2007). Therefore, firm size is expected to have a negative effect on the CAR.

Furthermore, leverage is an important governance mechanism as high debt levels decrease the future Free Cash Flows and limit managerial discretion (Stulz, 1990). Leverage creates incentives for managers to improve firm performance since managers have to repay creditors and often lose their jobs if their firm falls into financial distress (Masulis et al., 2007). Therefore, leverage is included as a control variable and is expected to have a positive effect on the CAR. Finally, the market-to-book value reflects firm valuation. A high market to book ratio implies that the shares of the firm are overvalued and in this case firms are more likely to use equity for the payment. Firm valuation influences the method of payment and therefore the acquirer shareholder return. Equity payments become more likely when the market to book ratio is higher and equity payments negatively affect the CAR. Thus, the market to book value is expected to have a negative effect on the CAR.

𝐶𝐴𝑅_!"= 𝛽_! + 𝛽_! 2010𝑡𝑜2017 + 𝛽_! 𝑅𝑒𝑔𝑢𝑙𝑎𝑡𝑜𝑟𝑦 𝑄𝑢𝑎𝑙𝑖𝑡𝑦 + 𝛽_! 𝑅𝑒𝑙𝑎𝑡𝑒𝑑_!"+ 𝛽_!𝑇𝑒𝑛𝑑𝑒𝑟𝑂𝑓𝑓𝑒𝑟_!"+ 𝛽!𝐴𝑙𝑙𝐶𝑎𝑠ℎ!"+ 𝛽!𝐶𝑟𝑜𝑠𝑠𝐵𝑜𝑟𝑑𝑒𝑟!"+ +𝛽!𝐷𝑒𝑎𝑙𝑉𝑎𝑙𝑢𝑒!"+ 𝛽!𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒!,!!!+ 𝛽!𝐹𝑖𝑟𝑚𝑆𝑖𝑧𝑒!,!!!+ 𝛽_!"𝑀𝑇𝐵𝑉_!,!!!+ 𝜀_!

4.3 Statistical tests

An OLS regression is used to estimate the parameters of the variables in the regression models. The significance of these parameters will be tested using t-tests. In order to test the significance of the CAAR of the sample and the differences between the subsamples, both a student t-test and the Wilcoxon rank sum test are used. The t-test is applicable in case of an event study, even when the assumptions of normality that the test requires are breached (Brown and Warner, 1985). In this study,

(20)

the t-statistic is defined as follows:

𝑡!""#= _!!""#!!!!!!""#!!!!! !

(7)

Additionally, the non-parametric Wilcoxon signed rank test is performed to ensure that the results hold in case that the CARs are not normally distributed. This test acknowledges that both the sign and the magnitude of the abnormal returns are indicators of significant differences between the means of the CAR (Schreuder, 1991). The statistic is defined as follows:

𝑊! = !!!!𝑟𝑎𝑛𝑘 𝐴!,! (8)

The test statistic for significance is then defined as:

𝑧!"#$%&%',! = !!!(!!!)/!_{! !!! !!!!} !"

(9)

(21)

5. Results

In this section the results from the event study and regression analysis are presented. The significance tests of the cumulative average abnormal returns of the acquirers are presented at first, followed by the results from the OLS regressions.

5.1 Significance tests of the CAAR

The CAARs of the entire sample and the subsamples have been tested for significance, as well as whether the difference between the CAARs of the subsamples is significant. Table 2 presents the results of the t-tests that test whether the CAARs are significantly different from zero.

Table 2: CAAR results of the entire sample and the subsamples

From the table it appears that the overall CAAR that is generated by takeover announcements in the sample is -0.071%. The CAAR itself is not significantly different from zero, however, so no hard conclusions can be drawn based on these findings. The CAAR of the sub-sample pre-2009 is -0.96% and not significant. The CAAR of the subsample post-2009 is significantly positive at 1.37%, giving the first indication for a shift in acquirer returns surrounding announcements. A comparison of the subsamples pre-2009 and post-2009 provides further insights. Table 3 reports the results from the Student t-test and Wilcoxon rank-sum test that measure whether the difference in the CAARs of the two sub-periods is significant.

Table 3: The results from the t-test and Wilcoxon rank-rum test, testing for differences between subsamples.

Full sample Pre-2009 Post-2009

CAAR SD CAAR t-test value p-value n -0.00071 0.00577 -0.1237 0.4509 125 -0.00966 0.00562 -1.206 0.1160 73 0.0137 0.056 1.716 0.0463 49

Student t-test Wilcoxon rank-sum test

2003-2008 2010-2017 p-value CAAR: -0.00966 CAAR: 0.0137 0.0247 W: 4076 W: 3427 0.0308

(22)

The student t-test shows a significant positive difference between the period 2010-2017 and the period 2003-2008 at the 5% level. This provides evidence for shift in acquirer returns in mega-takeover deals in Europe from negative to positive, with the year 2009 as a turning point. Furthermore, the Wilcoxon rank-sum test is used to check whether the results are robust and also hold when the normality

assumption is breached. The outcome of the test is similar to that of the student-t test and is significant at the 5% level. Therefore, evidence is provided to support the hypothesis that acquirer returns have turned positive since the financial crisis.

5.2 Regression analyses

Besides testing the acquirer CAARs, OLS regressions were run in order to test the relationships between the CAR and the variables explained in chapter four. Summary statistics of the sample are included in table 3 in the appendix. Table 4 presents the results from the regressions, which are further elaborated below.

Table 4: OLS regression results

***p < 0.01; **p < 0.05; *p < 0.1 (two sided). Standard errors are noted between parentheses. The acquirer CAR is the dependent variable, which is calculated for a 5-day (-2,+2) announcement window. Regression (1)

regresses the dummy 2010to2017 on the CAR. In regression (2) the variable RQ is added. Regression (3) includes 2010to2017 and the deal characteristics without the addition of RQ. Regression (4) includes the same variables as (3), with the addition of RQ. Regression (5) includes 2010to2017 and the firm characteristics. In regression (6) all variables are included except for RQ; this is added in regression (7) that includes all the variables. Regression (8) and (9) shows the regression results where all the variables are included and industry FE and country FE are accounted for respectively.

(1) (2) (3) (4) (5) (6) (7) (8) (9) 2010to2017 RQ Related CrossBorder AllCash DealValue Leverage FirmSize MTBV TenderOffer Intercept IndustryFE CountryFE N R2 0.023** (0.0118) -0.0097 NO NO 122 0.0318 0.0331*** (0.0125) -0.036** (0.0165) 0.0161 NO NO 122 0.0682 0.025** (0.0118) 0.0063 (0.0119) 0.022* (0.012) 0.0211* (0.0122) 0.0025 (0.0047) -0.0848 NO NO 122 0.1003 0.033*** (0.012) -0.027 (0.0167) 0.0066 (0.0118) 0.019 (0.012) 0.0188 (0.0122) 0.0188 (0.0047) -0.055 NO NO 122 0.1203 0.0325*** (0.0119) -0.029* (0.017) -0.043 (0.0376) -0.0026 (0.0039) -0.0003 (0.0025) 0.0814 NO NO 122 0.0747 0.0253** (0.0122) 0.0007 (0.0119) 0.0274** (0.0124) 0.0303** (0.131) 0.0037 (0.0058) -0.0371 (0.0367) -0.0079 (0.0049) 0.0002 (0.0024) -0.015 (0.0131) 0.0807 NO NO 122 0.0792 0.0293** (0.013) -0.0184 (0.018) 0.0054 (0.0123) 0.0266** (0.0125) 0.0278** (0.0135) 0.003 (0.006) -0.0407 (0.0378) -0.0069 (0.0049) -0.0004 (0.0025) -0.0163 (0.0133) 0.0933 NO NO 122 0.1494 0.025* (0.014) -0.0167 (0.0182) 0.0017 (0.009) 0.0274** (0.013) 0.0253* (0.014) -0.0006 (0.0063) -0.044 (0.0412) -0.006 (0.0053) -0.0002 (0.0027) -0.0187 (0.0142) 0.1177 YES NO 122 0.1927 0.0283* (0.0146) -0.0204 (0.019) 0.0024 (0.0132) 0.0169 (0.0145) 0.029** (0.0143) 0.0022 (0.0065) -0.025 (0.045) -0.0026 (0.0055) -0.0028 (0.0055) -0.0067 (0.015) 0.0189 NO YES 125 0.2412

(23)

Firstly, the variable 2010to2017, which measures the relationship between the CAR and acquisitions from the period after 2009, appears to be significantly positive in all regressions. This indicates that mega-deals that were announced after the financial crisis have a positive effect on the bidder CAR. This is in line with the expectations based on the improvements on internal control, corporate governance and takeover motivations described previously. When looking at the regressions separately, regressions (1), (3) and (6) do not include the variable on Research Quality. When

controlling for RQ in regressions (2), (4), and (5), the effect of the variable 2010to2017 reaches higher significance compared to regressions (1), (3), and (6). When controlling for Regulatory Quality and deal characteristics in regression (4), the 2010to2017 becomes significantly positive in relation to the CAR at the 1% level. The same significance level holds in regression (5), where Regulatory Quality and firm characteristics are accounted for. The findings in the regressions are in line with the results found in the analyses of the CAARs. This further supports the statement that acquisitions post-2009 generate positive acquirer shareholder returns.

Looking at the role of Corporate Governance in the shift of acquirer returns from negative to positive, the variable Regulatory Quality is included to control for the effective implementation of the European Takeover Directive and governance regulation on national level. Higher regulatory quality is expected to positively affect the CAR. However, the regression results contradict this expectation since the variable Regulatory Quality has a negative effect on the CAR in all regressions. These findings are significant in regressions (2) and (5), at the 5% and 10% levels respectively. What makes these findings surprising is that when controlling for Regulatory Quality the positive significance of the variable 2010to2017 becomes stronger. It therefore seems that regulatory quality does influence the period after the financial crisis, however it has not had the effect on the CAR that was expected. This is possibly explained by the fact that Regulatory Quality does not measure the effect of certain corporate governance measures itself. Instead, it measures the relative ability of governments to implement regulations such as the European Takeover Directive.

Looking at the control variables, the significantly positive effect of cross border deals on the cumulative abnormal returns is a surprising outcome. As cross border deals are a form of diversification, they were expected to destroy value rather than create value. However, given the developments in the harmonization of the European market for corporate control through the ETD and Action Plan of 2012, such negative effects appear to have turned positive. The benefits of economies of scope resulting from a greater market and business expansion potential outweigh the negative effects of an integration of firms from different countries. Furthermore, in line with existing literature, deals financed solely with cash have a positive effect on bidder CARs. The effects are significant in regressions (3) and (8) at the 5% and in regressions (6), (7) and (9) at the 10% level.

(24)

The remaining variables do not show significant effects on bidder CARs. Related acquisitions have a positive effect on the CAR, which is in accordance with the expectations. Tender offers and firm size turn out to have a negative effect on the CAR, which is also in line with the expectations.

Interestingly, leverage turns out to have a negative effect on the CAR in all regressions. However, findings are not significant so no hard conclusions can be drawn from these outcomes. Finally, the market to book value has a minimal effect on the bidder CAR. In this sample, the valuation of the firm does not appear to influence the wealth that is created from the takeover announcement.

5.3 Robustness checks

Several checks were performed in order to ensure that the found results are robust. First of all, the CAR and CAAR values have been estimated for a (-1, +1) window as well, which generates similar results. However, when using wider event windows of (-10, +10) or (-20, +20), the results found in the table become insignificant. Kothari and Warner (2004) state that larger event windows generate greater noise that disturbs the measurement of the wealth effect of an event. This means that such windows might not effectively capture the wealth effect of a takeover announcement. They state that the three-day event window misestimates the abnormal returns with a change of approximately 0.06 per cent, indicating that this event window is highly accurate.

As table 2 presents, the variable 2010to2017 always turns out to have a significantly positive effect on bidder CAR in all the regressions. Regressions including different variables have been performed in order to check whether the result regarding the period post-2009 remains similar. In regression (1) and (2), 2010to2017 and Regulatory Quality are the only variables included, which may result in an over estimation of the effects of the variables due to omitted variable bias. However, deal and firm characteristics are added in regressions (3) to (9) and the results of the 2010to2017 variable remain similar. The effect of the variable 2010to2017 therefore is not over estimated and holds in the different scenarios. Furthermore, the results also hold when they are tested using robust regressions.

Finally, given that acquirers from the sample are located in different countries and operate in different industries, Industry Fixed Effects and Country Fixed Effects are controlled for in regressions (8) and (9) respectively. In this case, the variable 2010to2017 still appears significant, albeit at the 10% level. The cross border variable is still significantly positive at the 5% level in when Industry Fixed Effects are accounted for. The effect of cross border announcements become insignificant when fixing for Country Fixed Effects, which may result from the fact that differences between countries are

accounted for and therefore the cross border variable shows a smaller effect. The effect of regulatory quality becomes insignificant, but overall the results hold. Finally, using relative deal size is instead of the natural logarithm of the deal value generates the same results.

(25)

6. Conclusion

This paper analyzes the wealth creation for shareholders of acquiring firms surrounding the announcement date in case of mega takeover deals. A sample of 125 acquisitions of firms from 17 different European countries is used to test whether there is a significant shift of returns from negative in the period from 2003 to 2008, to positive in the period form 2010 to 2017. Regulatory reforms since the financial crisis, together with the European Takeover Directive, have led to increased internal control, better risk management by firms, and higher shareholder involvement. These developments decrease the possibility of management to engage in takeovers driven by the agency motive. Instead, management is motivated to create synergies values and consequently generating positive shareholder returns. Daily stock data, event study methodology and OLS regressions are used to find supportive evidence for the hypotheses.

The main hypothesis analyzed is whether acquisitions in the period post-2009 generate positive returns for acquirer shareholders, resulting from more effective governance regulation that followed after the financial crisis. Supportive evidence is found for this hypothesis. The bidder CAAR turned out significantly positive at 1.37% in the period post-2009 and significantly differs from the CAAR pre-2009, which is negative at -0.97%. These results are significant at the 5% level and therefore it can be concluded that a shift in acquirer returns in mega-deals has occurred since the financial crisis. These findings are in line with the findings of Alexandridis et al. (2017), which may indicate that this shift is not just limited to the United States and Europe. Furthermore, it was hypothesized that regulatory quality on a national level increases the quality of the implementation of the ETD and governance regulations and therefore has a positive effect on the bidder CAR. Nevertheless, the results show a significantly negative effect of Regulation Quality on bidder CAR. Finally, a surprising finding is that cross border takeovers have a significantly positive effect on bidder CARs in this sample. This is most likely the result of the leveled playing field in the M&A market that was creating through the ETD.

This research leaves three main questions unanswered that are interesting for future research. First of all, an analysis of the long-term performance of acquirers after takeover announcement can provide insights whether the positive returns hold on the long-term as well. Secondly, given that acquirer returns show a shift for mega-deals in both Europe and the US, future research could focus on whether this shift occurred globally or in developing economies as well. Finally, using Corporate Governance measures such as board independence, remuneration policies for top managers or independent director ownership can help to further explain the effects that Corporate Governance has on shift in acquirer returns specifically.

(26)

7. Discussion

This paper looked into acquirer performance in case of mega deals in the European takeover market. A sample of 125 takeover deals was found and analyzed using existing literature and event study

methodology. In this section the limitations of this research are stated, as well as the ways in which the use of other methods could further improve this research.

First of all the market model is used in this research to perform the event study analysis. Although it is a commonly used method and known for its effectiveness in measuring short-term wealth effects, there are other models that take more factors into account when estimating abnormal returns. An example is the Fama-French 3 factor model, which extends the market model with the returns on a size portfolio (SMB) and a value portfolio (HML) (de Jong, 2007). The abnormal returns that are constructed in the Fama-French model are more accurate than the abnormal returns based on the market model and they show less cross-sectional correlation. However, de Jong (2007) states that correcting for market returns is typically sufficient for short horizon event studies and therefore the market model is used in this study.

Secondly, this study focuses on the European takeover market. However, the sample includes seventeen European countries and therefore does not fully cover the European market. The Eastern part of Europe is not well represented in the sample and therefore conclusions cannot be generalized over the entire European market. Martynova and Renneboog (2006), for example, have a sample containing 28 Continental European countries and the UK and Ireland covering the whole of Europe. This issue is a result from the restrictions imposed on the takeover characteristics, as both the target and acquirer had to be publicly traded firms and the deal value was required to be over 500 mil USD. Martynova and Renneboog (2006) incorporate private targets in their sample and do not impose a minimum deal value, which increases both sample size and the number of countries involved. A suggestion for future research is to increase the sample size by eliminating either one or both of the restrictions to see if the results hold for a larger sample as well.

Finally, the corporate governance developments in Europe were expected to lead to the shift in bidder shareholder wealth effects based on the found literature and regulations. A variable for regulatory quality has been used in order to account for the effectiveness of the implementation of regulation on a national level. This way, the implementation of the ETD and other governance regulations should be better in countries that score high on the Regulatory Quality Index and subsequently was expected to lead to an improvement of bidder CARs. Although the positive relation between bidder CAR and acquisitions post-2009 does become significantly stronger when accounting for Regulatory Quality,

(27)

the variable itself shows to have a negative effect on the CAR. In order to find evidence on the effect that corporate governance has on bidder CAR, more specific measures should be used. Examples are found in the papers of Masulis, Wang and Xie (2007) and Alexandridis et al. (2017). Measures used in these papers are indices on antitakeover provisions and variables that account for staggered boards, board independence, and independent director ownership. Due to data limitations in combination with time constraints it was not possible to implement such variables in this research. Therefore, a

suggestion for future research is to create variables that effectively measure corporate governance practices to measure the effects on bidder returns.

(28)

References

Alexandridis, G., Fuller, K. P., Terhaar, L., & Travlos, N. G. (2013). Deal size, acquisition premia and shareholder gains. Journal of Corporate Finance, 20, 1-13.

Andrade, G., Mitchell, M., & Stafford, E. (2001). New evidence and perspectives on mergers. Journal

of economic perspectives, 15(2), 103-120.

Arikan, A. M., & Stulz, R. M. (2016). Corporate acquisitions, diversification, and the firm's life cycle. The Journal of Finance, 71(1), 139-194.

Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. (2009). Economics of strategy. John Wiley & Sons.

Berkovitch, E., & Narayanan, M. P. (1993). Motives for takeovers: An empirical investigation.

Journal of Financial and Quantitative analysis, 28(3), 347-362.

Bösecke, K. (2009). Value creation in mergers and acquisitions–theoretical paradigms and past research. In Value Creation in Mergers, Acquisitions, and Alliances(pp. 25-40). Gabler. Brown, S. J., & Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of

financial economics, 14(1), 3-31.

Cai, J., Song, M. H., & Walkling, R. A. (2011). Anticipation, acquisitions, and bidder returns: Industry shocks and the transfer of information across rivals. The Review of Financial Studies, 24(7), 2242-2285.

Cefis, E., S. Rosenkranz, and U. Weitzel, (2008) Effects of coordinated strategies on product and process R&D, Journal of Economics, DOI 10.1007/s00712- 008-0041-z

Clerc, C., Demarigny, F., Valiante, D., de Manuel Aramendía, M. (2012) A Legal and Economic Assessment of European Takeover Regulation.

Conyon, M., Judge, W. Q., & Useem, M. (2011). Corporate governance and the 2008–09 financial crisis. Corporate Governance: An International Review, 19(5), 399-404.

Dissanaike, G., Drobetz, W., Momtaz, P., & Rocholl, J. (2016). Legal Shareholder Rights and Acquirer Returns (Working Paper). University of Hamburg, Germany.

Drobetz, W., & Momtaz, P. P. (2016). Corporate governance convergence in the European M&A market.

Faccio, M., & Lang, L. H. (2002). The ultimate ownership of Western European corporations. Journa

l of financial economics, 65(3), 365-395.

Franks, J., Harris, R., & Titman, S. (1991). The postmerger share-price performance of acquiring firms. Journal of Financial economics, 29(1), 81-96.

Goergen, M., Martynova, M., & Renneboog, L. (2005). Corporate governance convergence: evidence from takeover regulation reforms in Europe. Oxford Review of Economic Policy, 21(2), 243-268.

(29)

Goergen, M., & Renneboog, L. (2004). Shareholder wealth effects of European domestic and cross‐ border takeover bids. European Financial Management, 10(1), 9-45.

Golbe, D. L., & White, L. J. (1993). Catch a wave: The time series behavior of mergers. The review of

Economics and Statistics, 493-499.

Gupta, P. P., & Leech, T. (2015). The next frontier for boards: oversight of risk culture. EDPACS,

52(4), 1-16

Harford, J., & Li, K. (2007). Decoupling CEO wealth and firm performance: The case of acquiring CEOs. The Journal of Finance, 62(2), 917-949.

Hitt, M. A., Ireland, R. D., & Harrison, J. S. (2001). Mergers and acquisitions. The Blackwell

handbook of strategic management, 377-402.

Hopt, K. J. (2015). Corporate Governance in Europe: A Critical Review of the European

Commission's Initiatives on Corporate Law and Corporate Governance. NYUJL & Bus., 12,

139.

Kaplan, S. N., & Weisbach, M. S. (1992). The success of acquisitions: Evidence from divestitures.

The Journal of Finance, 47(1), 107-138.

Kaufmann, D., Kraay, A., & Mastruzzi, M. (2011). The worldwide governance indicators: methodology and analytical issues. Hague Journal on the Rule of Law, 3(2), 220-246. Kothari, S. P., & Warner, J. B. (2004). The econometrics of event studies.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of financial economics, 58(1), 3-27.

MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of economic

literature, 35(1), 13-39.

Maksimovic, V., Phillips, G., & Yang, L. (2013). Private and public merger waves. The Journal of

Finance, 68(5), 2177-2217.

Malmendier, U., & Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the market's reaction. Journal of financial Economics, 89(1), 20-43.

Martynova, M. V., & Renneboog, L. D. R. (2005). Takeover waves: triggers, performance and

motives. Tilburg University.

Martynova, M., & Renneboog, L. (2006). Mergers and acquisitions in Europe. Advances in corporate

finance and asset pricing, 13-75.

Martynova, M., & Renneboog, L. (2011). The performance of the European market for corporate control: Evidence from the fifth takeover wave. European Financial Management, 17(2), 208-259.

Masulis, R. W., Wang, C., & Xie, F. (2007). Corporate governance and acquirer returns. The Journal

of Finance, 62(4), 1851-1889

Moeller, S. B., Schlingemann, F. P., & Stulz, R. M. (2004). Firm size and the gains from acquisitions.

(30)

Moeller, S. B., Schlingemann, F. P., & Stulz, R. M. (2005). Wealth destruction on a massive scale? A study of acquiring‐firm returns in the recent merger wave. The journal of finance, 60(2), 757-782.

Mukherjee, T., Kiymaz, H., & Baker, H. (2004). Merger motives and target valuation: A survey of evidence from CFOs.

Officer, M. S. (2007). The price of corporate liquidity: Acquisition discounts for unlisted targets. Journal of Financial Economics, 83(3), 571-598.

Pitelis, C. N. (2007). A behavioral resource-based view of the firm: The synergy of Cyert and March (1963) and Penrose (1959). Organization Science, 18(3), 478-490.

Rhoades, S. A. (1983). Power, empire building, and mergers. Free Press.

Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of business, 197-216.

Schreuder, F., 1991. Handboek gegevensanalyse met SPSS/PC. Academic Service, Economie en Bedrijfskunde

Shleifer, A., & Vishny, R. W. (1989). Management entrenchment: The case of manager-specific investments. Journal of financial economics, 25(1), 123-139.

Shrivastava, P. (1986). Postmerger integration. Journal of business strategy, 7(1), 65-76.

Thomsen, S., & Conyon, M. (2012). Corporate governance: Mechanisms and systems. McGraw Hill. Yoshikawa, T., & Rasheed, A. A. (2009). Convergence of corporate governance: Critical review and

(31)

Appendix

Figure 1: The annual number of M&A transactions and total deal volumes in the period of 1985 to

2018 (forecast), Institute for Mergers Acquisitions and Alliances (2018).

Figure 2: Graph of the countries included in the sample and their size in the entire sample. Austria Belgium Denmark Finland France Germany Greece Ireland-Rep Italy Luxembourg Netherlands Norway Poland Spain Sweden Switzerland United Kingdom

(32)

Acquirer Nation Count % Austria 1 0.80% Belgium 5 4.00% Denmark 5 4.00% Finland 4 3.20% France 22 17.60% Germany 8 6.40% Greece 2 1.60% Ireland-Rep 2 1.60% Italy 5 4.00% Luxembourg 1 0.80% Netherlands 11 8.80% Norway 1 0.80% Poland 1 0.80% Spain 4 3.20% Sweden 7 5.60% Switzerland 9 7.20% United Kingdom 37 29.60% Total 125 100.00%

Table 1: the countries included in the sample, the deal count per country and the relative share of each country in the sample.

Table 2: summary statistics of the sample

Variable N Mean SD Min Max

2010to2017 RQ Related CrossBorder AllCash DealValue Leverage FirmSize MTBV TenderOffer CAR (-1, +1) CAR (-2, + 2) CAR (-10, +10) CAR (-20, + 20) 122 125 125 125 125 125 125 125 122 125 125 125 125 125 0.402 0.84 0.592 0.44 0.408 21.18 0.238 22.94 3.122 0.592 -0.00137 -0.00071 -0.00531 0.00002 0.492 0.368 0.493 0.498 0.493 1.126 0.157 1.56 2.3812 0.493 0.0566 0.0645 0.0846 0.1362 0 0 0 0 0 19.674 0 18.41 0.51 0 -0.1651 -0.2047 -0.3219 -0.2494 1 1 1 1 1 25.248 0.7216 26.38 16.98 1 0.2214 0.213 0.3074 0.6249

(33)

Table 3: definitions of the variables used in the OLS regression model. Variable Definition 2010 to 2017 RQ Related AllCash DealValue TenderOffer CrossBorder FirmSize Leverage Market-to-book value

Dummy variable equal to one when a takeover deal was announced in the period between 2010 and 2017.

A dummy variable if the country in which the acquirer is located scores above 85 in the regulatory quality index.

Dummy variable equal to one when the target and acquirer share the same 2-digit SIC code and are considered industry related.

Dummy variable equal to one if the deal is fully financed with cash. The natural logarithm of the total deal value that was reported from the ThomsonOne database.

Dummy variable equal to one if the deal is characterized as a tender offer.

Dummy variable equal to one in case the acquiring and target firms are not located in the same country.

The natural logarithm of the total assets of the acquiring firm, taken at the end of the fiscal year one year prior to the takeover announcement.

Leverage is defined as the total of long-term and short-term debt, divided by the total assets of the acquiring firm. Both the debt levels and the value of total assets are taken at the fiscal year-end one year prior to the takeover.

The acquirer market capitalization over the book value of equity, taken at the fiscal year-end one year prior to the takeover.

Mega-deal performance : evidence from the European M&A market : an empirical analysis of acquirer returns before and after the financial crisis