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MSc. Thesis of B. Elfrink (10643273) Supervisor: dr. V. Vladimirov
University of Amsterdam
Faculty of Business Economics; Finance 2013-2014
While an all cash takeover makes shareholders cheer,
would this reaction differ with the source of the cash?
An
examination on how the source of cash affects the market
reaction in a takeover.
Abstract
This thesis will focus on the financing decisions surrounding a takeover. Apart from the market reaction in all-cash and all-stock deals, this thesis also investigates the market’s reaction when the source of cash, in an all-cash deal, differs. This thesis confirms the findings of previous literature that all-cash deals earn higher announcement-induced cumulative abnormal returns (abnormal returns) than all-stock deals, for both bidder and target firms. More interestingly however, this thesis shows that the abnormal returns for the bidder firm around the takeover are affected by the source of cash. Bidder firms in all-cash deals earn significant positive abnormal returns when the financing method is debt. These abnormal returns differ significantly between the financing sub-samples, with debt earning the highest abnormal returns, followed by free cash flow, leaving all-cash deals financed with equity proceeds with the lowest abnormal returns.
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Acknowledgements
Foremost, I would like to thank my supervisor dr. Vladimir Vladimirov for his expertise, patience and support. He brought this thesis to a higher academic level as well as my understanding of complex financial issues. Also, I would like to thank Mr. Bjorn Witlox for his tremendous help in database errors and software problems. Furthermore, I would like to especially thank my parents for their continuous support and everlasting patience during all my years of studying. Without their support I would have never reached this level of academic education and I never would have been the person I am today. I would also like to give thanks to Elise Ruijs for giving me much support and the proper motivation to continue working on my thesis. Last but not least, I thank all my friends, for supporting me and making the time during my studies unforgettable.
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Table of Contents
I. INTRODUCTION ... 1
II. LITERATURE REVIEW... 4
A. GENERAL TAKEOVER PERFORMANCE ... 4
B. METHOD OF PAYMENT ... 5
i. Taxes ... 6
ii. Asymmetric Information ... 6
iii. Behavioural Arguments ... 7
C. FINANCING IMPLICATIONS ... 8
i. General Capital Structure Implications Of a Firm ... 9
ii. Free Cash Flow As a Financing Method ... 9
iii. Debt As a Financing Method ... 11
iv. Equity As a Financing Method ... 12
III. HYPOTHESIS AND METHODOLOGY... 13
A. HYPOTHESIS ... 13
B. METHODOLOGY ... 18
IV. DATA COLLECTION, SAMPLES AND CHARACTERISTICS ... 20
V. RESULTS ... 21
VI. CONCLUSION ... 28
VII. LITERATURE ... 32
VII. APPENDIX ... 37
A. GRAPHS OF ANNOUNCEMENT-INDUCED CAR’S ... 37
B. TESTING DIFFERENCES IN MEDIANS OF DEAL VALUES ... 43
C. EVENT-STUDIES ON CAR’S IN METHOD OF PAYMENT SAMPLES ... 44
D. EVENT-STUDIES ON CAR’S IN FINANCING SUB-SAMPLES ... 46
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I.
Introduction
Only a few economic phenomena attract the same empirical research and public attention as corporate takeovers. This comes as no surprise, considering that a takeover is among the largest investments a firm will ever undertake and hence, provides a unique window into the financing implications of a firm. This thesis will investigate the financing implications acquirers face around a takeover. More specifically, this thesis will focus on the market’s reaction, measured in abnormal returns, surrounding a takeover.
On September the 21st of 2011 United Technologies Corporation (UTC) announced its takeover of Goodrich Corporation, a takeover deal valued slightly over $16 billion.1 It is quite surprising that UTC paid the full amount in cash, and not in stock, considering the amount of the transaction.2 Acquiring firms can choose between cash, equity or a mix of cash and equity as the method of payment when acquiring a company. In general, shareholders prefer an all cash deal to an all equity deal, according to many papers concerning the method of payment in takeovers, as summarized by Betton, Eckbo, and Thorburn (2008).
The acquiring company is able to finance an all-cash takeover in three different ways. It can finance the takeover with cash already present in the firm, obtained through retained earnings and financing activities, from here on referred to as free cash flow. Furthermore, it has access to cash on the capital markets through borrowings and equity issuances. These three, free cash flows, borrowings and equity issuances, are considered the sources of financing in an all-cash deal. This thesis investigates whether cash is indeed the preferred method of payment and if the source of financing affects the reaction of bidder shareholders, when target shareholders are paid in cash. Does the source of financing matter in a takeover?
1 Thomson One M&A Database 2 Thomson One M&A Database
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First, this thesis investigates whether bidder and target shareholders earn abnormal returns when an all-cash and all-stock takeover deal is announced and if these abnormal returns differ when the method of payment differs. Secondly, it investigates if bidder shareholders keep track of the company’s sources of cash and if the abnormal return differs when the source of cash differs. Would bidder shareholders react differently, when the cash deal is financed with free cash flows, equity issuances or borrowings? Although the method of payment and the according abnormal returns are extensively researched, the source of financing in relation to this topic has been relatively unexplored. The research question of this thesis is:
Does the source of cash, in an all cash acquisition announcement, affect the abnormal returns to the acquiring firm’s shareholders?
For answering this question this thesis will start with summarizing existing literature on general takeover performance followed by a broad outline of the implications surrounding the firms decision for the method of payment. The second step is to look at the implications firms face when financing an acquisition. In order to empirically answer the question central to this thesis, data on completed U.S. takeovers conducted from 1990 to 2013 is used. The dataset is then divided in pure stock and pure cash samples. Furthermore, the cash sample is divided in different sub-samples based on the type of financing used for financing the all-cash deals. The abnormal returns of all the samples and sub-samples are analysed using an event-study using Eventus-software.
This thesis shows that the source of financing matters in a takeover. The hypothesis H1 to H11 follow the same perspective as the literature overview and start with general announcement-induced abnormal returns (H1 and H2) while narrowing its scope to
3 announcement-induced abnormal returns surrounding the method of payment (H3 to H8) and ultimately test whether the source of cash affects announcement-induced abnormal returns (H9 to H11). The main hypothesis are the latter (H9 to H11):
H9: Bidder shareholders earn negative announcement-induced abnormal returns in all-cash deals when the source of financing is free cash flow.
H10: Bidder shareholders earn positive announcement-induced abnormal returns in all-cash deals when the source of financing is debt.
H11: Bidder shareholders earn positive announcement-induced abnormal returns in all-cash deals when the source of financing is equity.
This thesis confirms the findings of previous literature that all-cash deals earn higher announcement-induced cumulative abnormal returns (abnormal returns) than all-stock deals, for both bidder and target firms. More interestingly however, it provides evidence that the abnormal returns for the bidder firm around the takeover are affected by the source of cash. Bidder firms in all-cash deals earn significant positive abnormal returns when the financing method is debt. This thesis finds that these abnormal returns differ significantly between the financing sub-samples, with debt earning the highest abnormal returns, followed by free cash flow, leaving all-cash deals financed with equity with the lowest abnormal returns.
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II.
Literature Review
This literature review presents the most significant papers in relation to the method of payment and the financing implications around a takeover. This part is divided in section A, B and C that relate to General Takeover Performance, Method of Payment and Financing Implications respectively.
A.
General Takeover Performance
The general takeover performance is extensively researched. Jensen and Rubeck (1983) summarized over 40 empirical studies and concluded, "that corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose" (p. 47). Myers and Maljuf (1984) research merger performance in relation to “financial slack”. According to Myers and Maljuf (1984) a merger is a way to acquire “financial slack”. When one firm’s surplus in financial slack covers the other firm’s deficiency, the merger always creates value. More on this can be found in part C of the literature overview. Roll (1986) argues that takeover gains have been overestimated, if they exist at all, because acquiring firms pay too much for the target firm. The question is, if Roll (1986) is correct, why would takeovers occur? Roll (1986) incorporates psychology in his research and constructs the “Hubris Hypothesis”, in which the bidder believes his valuation is correct and the market does not fully reflect the targets value. Hence, mergers are the result of an overoptimistic and overconfident acquirer. Inconsistent with Jensen and Rubeck (1983), Roll’s (1986) Hubris Hypothesis predicts that the combined value of the target and bidder falls slightly, the value of the bidding firm decreases and the value of the target firm increases.
5 Bradley, Desai, and Kim (1988) take into account possible synergistic gains arising from a takeover and construct the “Synergy Hypothesis”. Bradley et al. (1988) find that synergistic gains represent a 7.4% increase in the combined stockholders wealth. Hence, contradicting the Hubris Hypothesis from Roll (1986). Fuller, Netter, and Stegemuller (2002) mainly focus on bidder returns and control for acquirer characteristics. Furthermore, they make a distinction between publicly and privately held firms. Fuller et al. (2002) find that bidder shareholders gain when the bidder firm acquires a private firm, but lose when a public firm is acquired. The conclusion that can be drawn from previous research on general takeover performance is that the empirical results are mixed, especially concerning the combined corporate takeover gains.
B.
Method of Payment
Eckbo, Betton, and Thorburn (2008) provide a broad overview of the existing literature and examine the entire takeover process from the first bid to the final outcome. In case of a takeover, the acquirer can choose between cash, stock, and a mix of both to pay the target’s shareholders. According to Eckbo et al. (2008) the payment method choice depends on taxes, information asymmetries and behavioural arguments. This is consistent with Burch, Nanda, and Silveri (2012), Fuller et al. (2002) and Shleifer and Vishny (2003) who focus on these subjects in respective order. This section will start with taxes, followed by information asymmetries and behavioural arguments that play a role in the choice for the method of payment.
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i.
Taxes
When a takeover is paid with cash, target shareholders will have to pay tax immediately, according to the U.S. Internal Revenue Code. This thesis solely focuses on the U.S. market for corporate control. Because of taxes due, U.S. cash deals might be considered costly as opposed to stock deals.
Burch et al. (2012) consider the fact that stock offers, unlike cash offers, allow target shareholders to defer capital gains taxes. They find empirical evidence that the deferral value depends on the target shareholders willingness to hold stock of the acquirer. Huang and Walkling (1987), Franks, Harris, and Mayer (1988), Eckbo and Langohr (1989), and Hayn (1989) take an approach in which the premium in a takeover bid should reflect the tax due by the shareholders, and hence, the bid should be higher in this case. They have found evidence that supports their hypothesis that U.S. cash deals are relatively costly.
ii.
Asymmetric Information
Myers and Maljuf (1984) started with the hypothesis that investors concern with adverse selection produces a negative market reaction to the news of a stock deal. Fuller et al. (2002) argue that information asymmetry plays a role in the determination of the method of payment. This information asymmetry between the managers of the bidder firm and shareholders of the target firm causes uncertainty regarding the valuation of the acquirers stock. This causes the acquiring firm to prefer the usage of stock as a payment method when they have information that their stock is overvalued and cash when undervalued, according to Fuller et al. (2002). Schlingemann (2004) finds that bidder-announcement returns are negative on average in all-stock offers for public targets. Interestingly however, Fuller et al. (2002) as well as Moeller, Schlingemann, and Stulz (2004) and many others, find that the
7 bidder announcement returns are non-negative for private targets.
Shleifer and Vishny (2003) present a model of stock-market-driven takeovers. This model points out an incentive for acquirers to get their equity overvalued which enables them to make acquisitions with stock. Due to the uncertainty and limitations of stock as a method of payment, empirical studies show that, in the case of asymmetric information, cash is preferred to stock as a method of payment.
iii.
Behavioural Arguments
In the previous section this thesis focused on asymmetric information between bidder and target firms. This section will continue to focus on asymmetric information within the bidding firm and views the selection of the method of payment as a broader capital structure choice. In part A and B it is already shown that abnormal returns to bidder firms vary by the method of payment. There are two main explanations for this phenomenon, the signalling role theory and the benefit of debt theory. The first refers to the idea that method of payment chosen by the bidder reveals the bidder’s assessment of the true value of the combined firms assets, together with its belief about the true value of the assets in place (Yook, 2003). This is already stated in section B on asymmetric information. In this section the benefit of debt theory will be discussed.
When cash payments increase debt and hence, increase interest, they reduce the free cash flow. The benefit of debt theory states that this reduction of free cash flow reduces the agency costs of free cash flow because, due to the higher interest, there is less free cash flow available for spending at the discretion for managers (Yook, 2003). Yook (2003) follows Jensen (1986) who argues that, according to the principal-agent theorem, managers maximize their own utility rather than shareholders’, and thus use this free cash flow for their own interest and thereby destroying value. If a firm takes on debt, the interest will reduce the free
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cash flow available for managers to spend on perks.
Toffanin (2005) and Schlingemann (2004) are among the first to examine whether the market reaction to the method of payment depends on the type of cash being used. Schlingemann (2004) documents that after controlling for the payment form, financing decisions in the year prior to a takeover play an important role in bidder gains. Toffanin (2005) finds some evidence that it matters whether the cash used comes from borrowings, free cash flow, or from a previous equity issuance. In the latter, market reactions are insignificantly negative, whereas at first the market is, as usual in an all-cash deal, reacting significantly positive.
There is more research on this topic, as well as on taxes and asymmetric information. For example Hansen (1987), Eckbo, Giammarino, and Heinkel (1990), and Berkovitch and Narayanan (1990) who focus on a two-sided information asymmetry model. And also Harford (1999) who focuses on the acquisitions of cash rich firms in order to find evidence for the free cash flow theory. Harfords evidence “supports the agency costs of free cash flow explanation for acquisitions by cash-rich firms” (p. 1). The basic outcome is that announcement-induced abnormal stock returns are highest for all-cash deals and lowest for all-stock deals, leaving a mix of both in between.
C.
Financing Implications
A takeover is among the largest investments most firms will ever undertake. This section will provide an overview of the literature concerning the financing implications around the takeover process. First, this section will provide a basic theoretical framework concerning the capital structure of a firm. Secondly, it will provide an overview of the literature on the financing sources free cash flow, debt and equity.
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i.
General Capital Structure Implications Of a Firm
Modigliani and Miller’s (MM) (1961) theorem, also known as the capital structure irrelevance principle, is among the first to address the capital structure of firms. The MM theorem states that, when the market price process follows a random walk and there are no taxes, asymmetric information nor bankruptcy cost, the value of the firm is not affected by its capital structure. Because of the assumptions made, MM theory gave a great insight but lacks reality. In his attempt to solve the capital structure puzzle Myers (1984) constructed the “Pecking Order Hypothesis” (POH). This, in Myers (1984) own words, “old-fashioned” POH states that firms favour internal over external financing, and debt over equity when it issues securities. The POH existence is explained by some assumptions made in MM’s (1961) theorem, such as taxes, asymmetric information, agency problems, capital costs and risk.
Myers and Maljuf (1984) investigated whether the inferiority of issuing equity makes managers reject projects with a positive net present value (NPV). They developed a model in which the managers have superior information over investors, and the market undervalues the firm. They find that, in their model, managers indeed reject positive NPV projects when the only financing option is equity. Furthermore, Myers and Maljuf (1984) see a merger as a solution for a firm that “has too little slack” (p. 217). They argue that a firm with insufficient financial slack increases its firm value by acquiring more slack, which could be done by a merger. Myers and Maljuf’s (1984) conclude that mergers between firms, where the one firm’s surplus fully covers the other firm’s deficiency, always create value.
ii.
Free Cash Flow As a Financing Method
According to the POH, firms prefer internal to external funds. One of the ways to finance an acquisition through internal funds is by cash already present in the firm. These corporate funds come from financing activities and retained earnings. Jensen (1986)
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considers these corporate funds to be the free cash flow to the firm after all investments in positive NPV projects are done. From this consideration Jensen (1986) derives that all investments done with this free cash flow have negative NPV’s. Furthermore Jensen (1986) argues that, according to the principal-agent theorem, managers maximize their own utility rather than shareholders’, and thus use these funds for their own interest and thereby destroying value. According to Jensen (1986) these corporate funds should be distributed to shareholders, for example through dividends.
Lang, Stulz, and Walkling (1991) empirically test the arguments of Jensen (1986) considering the investment opportunities. They develop a measure of free cash flow by using Tobin’s q, the ratio between the market value of a physical asset's and its replacement value, to separate firms that have good investment opportunities and firms that do not. They find that, in their sample of successful tender offers, bidder returns are significantly negatively related to cash flow for bidder firms with a low Tobin’s q, but not for firms with a high Tobin’s q. Lang, Stulz, and Walkling (1991) also find that the relation between cash flow and the bidder returns differ significantly between low and high Tobin’s q bidders.
McCabe and Yook (1997) test the two theories of Jensen (1986) and Myers and Maljuf (1984) who predict positive returns to bidders in cash acquisitions, thus using up free cash flow and slack. McCabe and Yook (1997) use Lang, Stulz and Walking’s (1991) proxy for free cash flow and find that “cash bidders that have a low q and sizeable free cash flow and that reinvest a high percentage of this free cash flow have significant positive returns as Jensen’s theory predicts” (p. 697). However, McCabe and Yook (1997) find no evidence supporting Myers and Maljuf (1984) theory. Furthermore, acquirers bidding in cash, but lacking the Lang, Stulz and Walking’s (1991) free cash flows, have negative and similar returns as stock bidders.
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iii.
Debt As a Financing Method
In order to finance a takeover the acquirer can use debt, either publicly issued or provided by banks. Chowdry and Nanda (1993) consider the strategic role of debt in takeover contests. When bidding firms are able to expropriate existing debt holders to issue new debt with equal or senior priority, it will allow the bidding firm to bid more than their valuation of the target. Chowdry and Nanda (1993) argue that acquirers can bid more aggressively, hence, bidding more than the valuation, because some of the acquisition costs can be transferred to the existing debt holders.
Bharadwaj and Shivdasani (2003) look at the valuation effects of bank financing in acquisitions. In their sample of 155 cash bids between 1990 and 1996, they find that bank financing is more likely when internal cash reserves are low and that acquisitions that are entirely financed by banks are associated with large and positive acquirer announcement returns. They contribute this to the fact that bank debt preforms an important monitoring role in the acquisition process.
Debt as a financing method is most apparent in a Leveraged Buyout (LBO). Kaplan and Stein (1990) investigate the riskiness of debt in highly levered transactions. Kaplan and Stein (1990) conclude that given the amount of debt used in highly levered transactions, the variations in the pricing of debt, ex ante, can have a significant effect on stockholder wealth. In other words, when a firm has 90% permanent debt borrowed at 12%, each 1% mispricing of the interest rate on debt would allow the buyer to bid 7.5% more than the actual value of the target firm. Hence, a substantial part of the typical buyout premium of 40% might be explained by the mispricing of debt, according to Kaplan and Stein (1990).
Stein (1992) argues that, due to the adverse selection problems surrounding an equity issue, firms make use of convertible bonds to get equity in their capital structures. According to Stein’s (1992) research, convertible bonds are an attractive alternative to an equity or debt
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issuance, which suffer from negative informational consequences and financial distress costs respectively. Hence, Stein (1992) views convertible bonds as “backdoor equity financing”.
iv.
Equity As a Financing Method
In order to finance an acquisition, the acquiring firm can choose to issue equity as well. According to the POH and Myers and Maljuf’s (1984) model, presented in the earlier sections of this thesis, equity issuances suffer from adverse selection and other costs. Hence, following the POH, firms would only issue equity for highly profitable investments or do not issue equity at all.
Apart from the investment opportunities and the capital available, economic conditions play a role in the firm’s decision of issuing equity. “Equity market timing” refers to the fact that firms time the market when issuing equity. Firms issue equity when markets are high, and repurchase when markets are low. Baker and Wurgler (2002) investigate how equity market timing affects the capital structure and they argue that the resulting effects are indeed persistent. Baker and Wurgler (2002) suggest that the capital structure is a cumulative outcome of past equity market timing attempts.
Schlingemann (2004) analyses the bidder gains and the source of cash available. Schlingemann (2004) argues that that using the proceeds of previously issued equity eases the uncertainty regarding the equity issuance and the use of the proceeds. The argument Schlingemann (2004) provides is that, at the time when the equity is issued, investors are uncertain whether the proceeds will be used for value adding or value destroying projects. When the proceeds are used, at least the uncertainty diminishes. Schlingemann (2004) also considers his findings supportive of the free cash flow theory and the POH.
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III. Hypothesis and Methodology
This part of the thesis will introduce the hypothesis and the methodology used for testing these hypothesis. It will briefly explain from which literature and theories the hypothesis and expectations are derived. After introducing the hypothesis, it will introduce the methodology used for conducting our event-study and how the statistical significance tests are designed. The same set-up as previous will be used, hence, it will start by testing the abnormal returns surrounding takeovers in general and afterwards narrow the scope towards the different financing methods used in the case of all-cash deals.
A.
Hypothesis
First this thesis will examine the abnormal returns around a takeover in general for target and bidder firms. It starts by examining the abnormal returns for target shareholders when a takeover is announced. Jensen and Rubeck (1983) argue in their summary of 40 empirical papers that target shareholders benefit in case of a takeover. Roll’s (1986) Hubris Hypothesis predicts that bidder firms tend to overpay target shareholders; hence, target shareholders gain from a takeover. Bradley, Desai, and Kim (1988) account for synergistic gains and state that these gains increase combined shareholders wealth with 7.4%.
Based on these findings the first hypothesis is as follows:
H1: Target shareholders earn positive abnormal returns when a takeover is announced.
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Next this thesis will focus on the abnormal returns for bidder shareholders when a takeover is announced. Jensen en Rubeck (1983) conclude from their summary of 40 empirical papers that bidder shareholders do not loose in case of a takeover. According to Roll’s (1986) Hubris Hypothesis bidder firms tend to overpay target shareholders due too over optimism and over estimation of the bidder’s assessment of the target firm. Bradley, Desai, and Kim (1998) account for synergistic gains, which increase combined shareholders wealth with 7.4%. Fuller et al. (2002) conclude that bidder shareholders gain when the bidder firm acquires a private firm, but loose when a public firm is acquired. As it will research public firms only, the latter conclusion is relevant here. Therefore, this thesis will conclude that the only positive remark on bidder abnormal returns is the synergistic gains, but Bradley et al. (1998) have only showed this with respect to the combined shareholders wealth. They do not state how this wealth is transferred. Hence, these findings lead to the second hypothesis:
H2: Bidder shareholders earn negative abnormal returns when a takeover is announced.
As mentioned above, when one company acquires another, it can pay with cash, stock or a mix of cash and stock. This thesis will now consider the abnormal returns of target shareholders when an all-stock or all-cash deal is announced. In the hypotheses it will also use the findings stated in the introduction of the first hypothesis, with the following extension.
Burch, Nanda, and Silveri (2012) consider the fact that stock offers allow target shareholders to defer capital gains taxes. They find empirical evidence that the deferral value depends on the target shareholders willingness to hold stock of the acquirer. Myers and
15 Maljuf (1984) argue that investors concern with adverse selection produces a negative market reaction to the news of a stock deal. Due to the uncertainty and limitations of stock as a method of payment, empirical studies show that, in the case of asymmetric information, cash is the preferred over stock as a method of payment. According to Jensen (1986) and Yook (2003), increased debt caused by all-cash deals reduces the agency costs of free cash flow by reducing the cash flow available for spending at the discretion for managers.
Hansen (1987), Eckbo, Giammarino, and Heinkel (1990), and Berkovitch and Narayanan (1990) conclude that announcement-induced abnormal stock returns are highest for all-cash deals and lowest for all-stock deals, leaving a mix of both in between.
This leads to the third, fourth and fifth hypotheses:
H3: Target shareholders earn less announcement-induced abnormal returns in case of an all-stock deal as opposed to mixed cash and stock deals.
H4: Target shareholders earn higher announcement-induced abnormal returns in case of an all-cash deal as opposed to mixed cash and stock deals.
H5: Target shareholders will earn announcement-induced abnormal returns in case of a mixed deal, which are higher as opposed to all-stock, but lower as opposed to all-cash deals.
The next hypotheses will focus on the bidder announcement-induced abnormal returns in all-cash, all-stock, and mixed cash and stock deals. Again, this thesis also considers the findings presented in the introduction of the second hypothesis, but with the following additions.
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Huang and Walkling (1987), Franks, Harris, and Mayer (1988), Eckbo and Langohr (1989), and Hayn (1989) have found evidence that U.S. cash deals are relatively costly, due to the fact that the bid in cash reflects taxes due by target shareholders. Fuller et al. (2002) argue that information asymmetry causes the acquiring firm to prefer the usage of stock as a payment method when they have information that their stock is overvalued and cash when undervalued. Hence, announcing an all-stock deal signals the assessment of the acquiring firm that their stock is overvalued.
Based on these findings the next hypotheses are constructed:
H6: Bidder shareholders earn less announcement-induced abnormal returns in case of an all-stock deal as opposed to mixed cash and stock deals.
H7: Bidder shareholders earn higher announcement-induced abnormal returns in case of an all-cash deal as opposed to mixed cash and stock deals.
H8: Bidder shareholders earn announcement-induced abnormal returns in case of a mixed deal, which are higher as opposed to all-stock, but lower as opposed to all-cash deals.
Now this thesis will focus on the announcement-induced abnormal returns in all-cash deals while taking the source of financing into account. According to the MM (1961) theorem of capital structure irrelevance, it would not matter how a takeover is financed. In reality however, due to taxes, asymmetrical information and risk for example, their proposition will not hold.
17 First it will consider free cash flow as a source of financing in an all-cash deal. Myers (1984) POH states that firms favour internal, free cash flow, over external, debt and equity, financing, and debt over equity when it issues securities. However, Jensen (1986) Free Cash Flow Theorem predicts that all investments done with free cash flow have negative NPV’s. Lang, Stulz, and Walkling (1991) find that bidder returns are significantly negatively related to cash flow for bidder firms with a low Tobin’s q. McCabe and Yook (1997) find that “cash bidders that have a low q and sizeable free cash flow and that reinvest a high percentage of this free cash flow have significant positive returns as Jensen’s theory predicts” (p. 697).
Second this thesis will consider debt as a source of financing in an all-cash deal. Chowdry and Nanda (1993) argue that acquirers can bid more aggressively when the source of financing is debt when some of the acquisition costs can be transferred to the existing debt holders. Bharadwaj and Shivdasani (2003) find that, due to the monitoring role of banks, acquisitions that are entirely financed by banks are associated with large and positive acquirer announcement returns.
Third and last it will consider equity as a source of financing in an all-cash deal. Following Myers and Maljuf’s (1984) and Myers (1986) POH, firms would only issue equity for highly profitable investments or do not issue equity at all, due to adverse selection and other costs associated with issuing equity. Schlingemann (2004) argues that investors are uncertain whether the proceeds of an equity issuance will be used for value adding or value destroying projects. When the proceeds are used, the uncertainty diminishes.
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These findings lead to the last hypotheses:
H9: Bidder shareholders earn negative announcement-induced abnormal returns in all-cash deals when the source of financing is free cash flow.
H10: Bidder shareholders earn positive announcement-induced abnormal returns in all-cash deals when the source of financing is debt.
H11: Bidder shareholders earn positive announcement-induced abnormal returns in all-cash deals when the source of financing is equity.
B.
Methodology
In order to test the hypotheses, a short-term event study is performed using Eventus software. With this event study the impact of an acquisition announcement on the returns of both the bidding and the target firms is measured. The event study timeline follows Toffanin (2005) and consists of an estimation window in which the “normal” return of a firm is determined [-301, -46], a holdout window [-46, -30], three event windows [-2, 2], [-10, 10] and [-30, 30] and a post-event window [2, 15].
The normal returns are calculated using the MacKinlay’s (1997) market model, see equation 1, where and are the returns on the firm’s security and the market portfolio
at time t and with as the beta of the firm’s security.
19 The abnormal returns for each day in the event windows are computed as shown in equation 2. Hence, the abnormal return equals the actual return of the specific day minus the estimated normal return.
̂ ̂ (2)
Finally, the abnormal returns are aggregated for each security over the event window and cumulative abnormal returns are calculated as shown in equation 3.
̅̅̅̅̅̅( ) ∑ ̅̅̅̅̅ (3)
The abnormal returns are calculated for the bidder and target firm individually. The combination approach will reflect the overall effect of the acquisition announcement and will be obtained by adding a weight to bidder and target firms, according to the size data. The significance of the CAR’s are tested using a Patell Z-test and a Portfolio Time-Series t-test. These event studies will be done for pure cash and pure stock payments. In the case of pure cash payments, event studies will also be done for borrowing, equity issuance proceeds, free cash flow, and mixed sources.
In order to test for statistical differences between CAR’s in the different (sub) samples, the a Wilcoxon rank-sum (Mann-Whitney) test is used. This test might be able to reject the null-hypothesis that the CAR’s in the samples are the same.
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IV. Data Collection, Samples and Characteristics
The dataset contains completed U.S. takeovers, with a publicly traded acquirer and target, from 1990 to 2014. This is done after considering the differences in U.S. and E.U. legislation (U.S. Internal Revenue Code) and the differences between acquisitions of public and private companies [see for example Schlingemann (2004) & Moeller, Schlingemann, and Stulz (2004)], which is of no interest in this particular research. Furthermore, this thesis excludes LBO’s and firms in the financial and utilities sector (sic 6021-6799). It also excludes acquisitions done within 365-days after a previous acquisition, by the same acquirer. Last, although it excludes repurchases and firms going private, there were still 460 observation were the acquirer was also the target. After excluding all these observations, the universe sample consists of 2771 completed U.S. takeovers.
Most of the data is extracted from the Thomson One M&A Database. The Thomson One M&A Database also provides information about the method of payment. After all the relevant data is collected, the dataset is divided in pure cash and pure stock samples. The Thomson One M&A Database also provides information on the source of financing for the transactions. When the source of financing is solely listed as corporate funds or simply not provided by the database, the source of funds is implied. In these specific cases, it will be inferred that if a bidder issued stock or debt in the year prior to the acquisition, the proceeds of these issues were used for financing the acquisition. Data on debt and equity issuances is extracted from the Thomson One New Issues Database.
For example, Pfizer Inc. announced its takeover of Esperion Therapeutics on December the 19th of 2003 and the source of funds was listed solely as Corporate Funds in the data retrieved from the Thomson One M&A database.3 However, between December the 19th of 2002 and the announcement date, Pfizer Inc. issued two syndicated loans and issued
21 two times U.S. non-convertible debt.4 It is assumed that the proceeds of these debt issuances are used to finance the acquisition. As this takeover was paid fully in cash, this acquisition is labelled as an all-cash deal with debt as financing method. The same is done for companies where the Thomson One M&A Database did not provide the source of funds. In 527 takeovers the source of financing was not provided or listed solely as “Corporate Funds” and hence, the implied source is used.
The summary statistics of the data are stated in Table 1, on the next page. In 253 (9.13%) cases the method of payment is unknown, and these cases are only used in tests concerning the entire universe. Concerning the method of payment, the universe consists of 768 (27.72%) cash, 919 (33.16%) stock, and 811 (29.27%) mixed payment takeovers. These 768 cash takeovers are in 275 (35.81%) cases financed with debt, in 31 (4.04%) cases with equity, in 311 (40.49%) cases with free cash flow, and in 151 (19.66%) cases the financing of the cash takeover is mixed. Due to the number of observations concerning cash takeovers purely financed with equity issuing proceeds, this thesis has to be very cautious when interpreting these specific results.
This thesis also obtaines the deal values in the different (sub) samples. The difference in the mean and median of the deal values might be evidence that concerning deal values, the distribution is non-normal. Therefore, when testing for statistical differences in deal values between the samples, a Wilcoxon rank-sum (Mann-Whitney) test is used, which is more efficient than a t-test in non-normality. Unfortunately, Eventus software does not provide median CAR’s, so this thesis assumes normality. However, statistical difference in CAR’s is also tested using a Wilcoxon rank-sum (Mann-Whitney) test.
4 Thomson One New Issues Database
20
Data Description
Universe Method of payment Financing method in all-cash deals
All Cash Stock Mix Unk nown Debt Equity
Free Cash
Flow Mix
N 2771 768 919 811 253 275 31 311 151
% 100% 27.72% 33.16% 29.27% 9.13% 9.92% 1.12% 11.22% 5.45%
% of Cash 100% 35.81% 4.04% 40.49% 19.66%
Mean Deal Value $mil 1,042.11 488.81 1,049.56 1,865.43 126.65 597.72 45.58 255.26 862.48
Median Deal Value $mil 127.47 100.00 110.23 372.28 13.48 159.00 15.00 46.11 264.40
Std. Dev. Deal Value $mil 4,197.11 1,232.33 5,387.21 4,948.37 742.29 1,340.41 61.69 602.13 1,848.59
High $mil 89,167.72 16,182.73 89,167.72 72,671.00 11,065.46 12,499.95 262.37 6,865.72 16.182.72
Low $mil 0.001 0.001 0.040 0.330 0.240 0.170 0.500 0.001 3.500
Number of deals in:
1990 - 1999 1,458 322 556 402 163 120 19 117 66 % 52.62% 41.93% 60.50% 49.57% 64.43% 43.64% 61.29% 37.62% 43.71% 2000 - 2009 1,075 334 321 341 75 112 11 158 53 % 38.79% 43.49% 34.93% 42.05% 29.64% 40.73% 35.48% 50.80% 35.10% 2010 - 2013 238 112 42 68 15 43 1 36 32 % 8.59% 14.58% 4.57% 8.38% 5.93% 15.64% 3.23% 11.58% 21.19%
Data description of the data used in this thesis, stamming from the Thomson One M&A Database and the Thomson One New Issues Database. Where the source of funds is listed as "-" or solely as "Corporate Funds", the source of funds is derived from the Thomson One New Issues Database. When a firm issued debt and/or equity within 365 days prior to the takeover-announcement, it is assumed that the proceeds of these issues are used to finance the acquisition.
21
V.
Results
This section presents the results obtained in this thesis. In table 2 and 3 on page 26 and 27 the results are summarized for the method of payment samples and source of financing sub-samples respectively. First, it obtains that the deal values differ significantly between the (sub) samples. These results can be found in table 1 of the Appendix. When looking at the method of payment, mixed payment is associated with the highest deal values while cash deals are associated with the lowest deal values, ignoring takeovers with an unknown method of payment. These values significantly differ at the 0.01 level, see table 1 in the Appendix. The deal value in all-stock deals does not significantly differ from the deal value in the entire universe. The deal values also differ between our sub-samples concerning the source of financing in all-cash deals. Mixed-financing is associated with the highest deal values. Takeovers financed with equity proceeds are associated with the lowest deal values. All differences in deal values in our financing sub-samples are statistically significant at the 0.01 level, see table 1 of the Appendix.
When looking at all deals in the universe this thesis obtains negative announcement-induced CAR’s for bidder firms, and positive announcement-announcement-induced CAR’s, hereafter
abnormal returns, for target firms, see graph 1 and 2 in the Appendix. In case of the bidder
firms the abnormal returns are -0.70% [-10, 10] and -0.71% [-1, 1]. For target firms the abnormal returns are 24.27% [-10, 10] and 20.79% [-1, 1]. These results are all statistically significant at the 0.01 level, see table 2 in the Appendix. These results are in line with Roll’s (1986) Hubris Hypothesis stating that bidder firms loose in a takeover due to overconfidence and over optimism of bidder firm management. However, these results contradict with Jensen and Rubeck’s (1983) work stating that bidder firms do not loose. Both in the [-10, 10] and the [-1, 1] windows bidder firms earn significant negative abnormal returns.
22
Focusing on the method of payment it obtains significant positive abnormal returns for both bidder and target firms in all-cash deals, see graph 3 and 4 and table 3 in the Appendix. For bidders the abnormal returns are 1.22% [-10, 10] and 1.07% [-1, 1]. For targets the abnormal returns are 32.05% [-10, 10] and 29.08% [-1, 1]. For all-stock deals, it obtains significant negative abnormal returns for bidders, -2.32% [-10, 10] and -0.74% [-1, 1], but positive abnormal returns for targets, 24.60% [-10, 10] and 21.37% [-1, 1], see graph 5 and 6 and table 4 in the Appendix. When the method of payment is a mixture between cash and stock, this thesis obtains results similar to the pure stock results, see graph 7 and 8 and table 5 in the Appendix. Hence, it obtains that bidders earn negative abnormal returns, -2.14% [-10, 10] and -0.74% [-1, 1] and targets earn positive abnormal returns, 24.60% [-10, 10] and 21.37% [-1, 1]. All results are significant at the 0.01 level.
Next, this thesis tests whether these abnormal returns differ significantly between the method of payment samples, see table 10 and 11 in the Appendix. When looking at bidder firms in the [-10, 10] event window it finds that all-cash deals generate an abnormal return greater than all-stock deals and mixed payment deals. Furthermore, in the [-1, 1] event window it finds that all-cash deals earn abnormal returns greater than all-stock deals and deals with mixed payment. For target firms in the [-10, 10] event window this thesis finds that all-cash deals generate an abnormal return greater than in all-stock deals and greater than in mixed payment deals. In the [-1, 1] event window it finds that all-cash deals earn an abnormal return greater than all-stock deals and mixed payment deals. All differences are statistically significant at the 0.01 level. This thesis shows that for both target and bidder firms all-cash deals earn highest abnormal returns followed by mix payments, leaving stock payments with the lowest abnormal returns. It argues that this might be due to taxes, asymmetrical information, and behavioral arguments.
23 (1988), Eckbo and Langohr (1989), and Hayn (1989) who find evidence that cash deals are relatively costly due to taxes. Investors might anticipate a higher bid to compensate them for their taxes due thereby creating higher abnormal returns. The findings of this thesis are also in line with Myers and Maljuf (1984) who state that adverse selection produces a negative market reaction to the news of a stock deal. Partly however, because this thesis does not find such evidence for target firms, although their abnormal returns are lowest (but still positive) in case of an-all stock deal. The results are comparable to Schlingemann (2004) who finds that due to adverse selection bidder-announcement returns are negative on average in all-stock offers for public targets. These results are also in line with the behavioural arguments as proposed by Yook (2003) who follows Jensen’s (1986) benefit of debt theory, predicting all-cash deals are preferred by investors because they reduce the free cash flow available for managers.
Finally, this thesis obtains the results for the financing sub-samples and they can be found in graph 9-12, table 6-9, and table 12-13 of the Appendix. In the financing sub-samples it solely focus on bidder firms. Bidder firms that finance an all-cash deal with stock, earn positive and significant abnormal returns at the 0.01 level of 1.52% [-10, 10] and 1.59% [1, 1]. Bidders firms that finance an all-cash deal with equity proceeds, earn positive but insignificant abnormal returns, 1.41% [-10, 10] and 0.74% [-1, 1]. Apart from the fact that these returns are insignificant, the number of observations is 23. Hence, the ability to interpret these results is limited. Furthermore, bidder firms that finance an all-cash deal with free cash flow earn positive but insignificant abnormal returns, 0.17% 10, 10] and 0.18% [-1, 1]. When focusing on bidder firms that finance an all-cash deal with a mix of debt, equity proceeds and free cash flow, earn positive and significant returns at the 0.001 level of 2.75% [-10, 10] and 1.93% [-1, 1].
sub-24
samples and test whether these differences are statistically significant. First it will focus on the [-10, 10] event window. This thesis shows that all-cash deals financed with debt earn significantly (at the 0.01 level) higher abnormal returns than all-cash deals financed with equity proceeds. Also, it finds that bidder firms that finance an all-cash deal with debt earn significantly (at the 0.05 level) higher abnormal returns firms that finance the all-cash deal with free cash flow. Furthermore, it shows that bidder firms that finance an all-cash deal with debt earn, insignificantly, less abnormal returns than firms who finance an all-cash deal with a mix of debt, equity proceeds and free cash flow. Also, bidder firms that finance an all-cash deal with free cash flow earn significantly (at the 0.10 level) greater abnormal returns than bidder firms that finance an all-cash deal with equity proceeds and significantly (at the 0.10 level) less than all-cash deals financed with a mix of debt, equity proceeds and free cash flow. Last, firms that finance an all-cash deal with equity proceeds earn, insignificantly, less abnormal returns than firms that finance an all-cash deal with a mix of debt, equity proceeds and free cash flow. This thesis finds the same results in the [-1, 1] event window, see table 12 and 13 in the Appendix. It shows that for bidder firms all-cash deals financed with debt or a mix of debt, equity proceeds and free cash flow earn the highest abnormal returns, followed by free cash flow, leaving all-cash deals financed with equity proceeds with the lowest abnormal returns. This might be due to the specific financing implications related to the source of financing.
The results contradict the M&M’s (1961) capital structure irrelevance principle stating that the value of the firm is not affected by its capital structure. This thesis indeed finds different abnormal returns between our financing sub-samples. The results also find some evidence for the POH constructed by Myers (1984). This POH states that internal finance is preferred to external finance, hence, firms would only use external finance (debt or equity proceeds) for highly profitable investments or do not use external finance at all. This
25 thesis finds that external finance (debt) is associated with higher abnormal returns than internal finance (free cash flow). However, it does not find these results for equity proceeds. This is also in line with Jensen’s (1986) free cash flow hypothesis, who states that the free cash flow is the remainder after all investments in positive NPV projects are done. Furthermore, these findings are in line with Bharadwaj and Shivdasani (2003) who find that acquisitions that are entirely financed by banks are associated with large and positive acquirer announcement returns. The POH constructed by Myers (1984) also states that debt is preferred to equity as a source of financing. Hence, following the POH, firms would only issue equity for highly profitable investments or do not issue equity at all. This thesis finds that cash deals financed with debt are associated with higher abnormal returns than all-cash deals financed with equity proceeds, contradicting this part of Myers (1984) POH. Again, due to the number of observations in our equity sub-sample, this thesis has to be very cautious while interpreting these results.
26
Table 2.
Method of Payment Results
Mean Ordinary On Magnitude Mean Ordinary On Magnitude Sample Event-Window Bidder CAR Based On Medians Target CAR Based On Medians
All Deals (-10, 10) -0.70%** - 24.27%*** -All Deals (-1, 1) -0.71%*** - 20.79%*** -All-Cash (-10, 10) 1.22%*** 1 32.05%*** 1 All-Cash (-1, 1) 1.07%*** 1 29.08%*** 1 All-Stock (-10, 10) -2.32%*** 3 24.60%*** 3 All-Stock (-1, 1) -0.74%*** 3 21.37%*** 3 Mix (-10, 10) -2.14%*** 2 23.30%*** 2 Mix (-1, 1) -0.77%*** 2 20.01%*** 2
This table summarizes the results found for our method of payment samples concercing the announcement-induced cumulative abnormal returns. Where ^, *, **, and *** denote statistical significance at the 0.10, 0.05, 0.01 and 0.001 levels, respectively, using a generic one-tail test for the mean CAR's. The samples are ordered from the largest to the smallest CAR's, based on a Wilcoxon ranksum (Mann-Whitney) test, see table 10 and 11 in the Appendix. This test uses median values and hence, might contradict an ordering based on mean CAR's.
27
Table 3.
Source of Financing in All-Cash Deals Results
Mean Ordinary On Magnitude Sample Event-Window Bidder CAR Based On Medians
Debt (-10, 10) 1.52%** 1
Debt (-1, 1) 1.59%*** 1
Equity Proceeds (-10, 10) 1.41% 3
Equity Proceeds (-1, 1) 0.74% 2
Free Cash Flow (-10, 10) 0.17% 2
Free Cash Flow (-1, 1) 0.18% 2
Mix (-10, 10) 2.75%*** 1
Mix (-1, 1) 1.93%*** 1
This table summarizes the results found for our financing samples concercing the announcement-induced cumulative abnormal returns. Where ^, *, **, and *** denote statistical significance at the 0.10, 0.05, 0.01 and 0.001 levels, respectively, using a generic one-tail test for the mean CAR's. The samples are ordered from the largest to the smallest CAR's, based on a Wilcoxon ranksum (Mann-Whitney) test, see table 12 and 13 in the Appendix. This test uses median values and hence, might contradict an ordering based on mean CAR's. We see that based on this Wilcoxon ranksum (Mann-Whitney) test debt and mix do not significantly differ, but both have larger CAR's than all-cash deals financed with equity proceeds or free cash flow. Only in the [-10, 10] window we can see with significance that all-cash deals financed with free cash flows earn higher abnormal returns than all-cash deals financed with equity proceeds.
28
VI. Conclusion
This thesis focuses on 2771 U.S. completed takeovers and the announcement-induced cumulative abnormal returns. The universe is divided into different samples based on the method of payment and sub-samples based on the source of financing when the method of payment was cash. In order to construct correct financing sub-samples the source of financing is implied in some cases, based on data subtracted from the Thomson One New Issues Database. Next the samples and sub-samples were constructed and Eventus-software was used to calculate the announcement-induced cumulative abnormal returns. Stata-software and a Wilcoxon ranksum test are used to find statistical evidence that the abnormal returns indeed significantly differ between our method of payment samples and our source of financing sub-samples.
First, this thesis finds differences in deal values between our samples and sub-samples. Due to the large difference in mean and median deal values, this thesis tests whether they significantly differ using a Wilcoxon ranksum (Mann-Whitney) test. This thesis finds that the deal values indeed significantly differ between the samples and sub-samples. When this thesis focuses at the method of payment, mixed payment is associated with the highest deal values while cash deals are associated with the lowest deal values, ignoring takeovers with an unknown method of payment. When this thesis focuses at the financing sub-samples, mixed financing is associated with the highest deal values followed by debt financing. Takeovers financed with equity proceeds are associated with the lowest deal values, even lower than free cash flow financing. As this is not the main interest of this thesis, it does not give any causal interpretation to these results. A logical explanation might be however, that larger deals are only possible using a mixed method of payment and a mix of financing, due to the availability of cash and access to the capital markets, in an all-cash deal.
29 When this thesis focuses on the abnormal returns in all deals, it confirms the first and second hypothesis. Target firms indeed earn positive abnormal returns in a takeover where bidder firms earn negative abnormal returns. These findings are considered in line with Roll’s (1986) Hubris Hypothesis but contradictious towards Jensen and Rubeck’s (1983) work.
Looking at the bidder abnormal returns in the method of finance samples, this thesis confirms the third, fourth and fifth hypothesis. Considering the target abnormal returns, this thesis confirms the sixth, seventh and eighth hypothesis. Abnormal returns, for both bidders and targets, are highest for all-cash deals and lowest for all-stock deals, leaving a mix of both in between. These findings are considered in line with Hansen (1987), Eckbo, Giammarino, and Heinkel (1990), and Berkovitch and Narayanan (1990). Unfortunately, the Eventus-software did not provide median cumulative abnormal returns. Again, this thesis constructs a Wilcoxon ranksum (Mann-Whitney) test, and finds that the differences between the samples are all significant.
As the last and most important step, this thesis looked into the financing sub-samples. It cannot confirm the ninth hypothesis that bidder firms earn negative abnormal returns in all-cash deals when the source of financing is free all-cash flow. This thesis finds positive but insignificant abnormal returns in all-cash deals when the source of financing is free cash flow. However, it does find confirmation of the tenth hypothesis; bidder firms do indeed earn significant and positive abnormal returns when the source of financing, in an all-cash deal, is debt. Furthermore, it finds some evidence that supports the eleventh hypothesis that bidder firms earn positive abnormal returns in all-cash deals when the source of financing is equity. Positive but insignificant abnormal returns are found. Unfortunately, the number observations in this sample is equal to 23, so this thesis is very limited in the interpretation of this result. Hence, it cannot confirm the eleventh hypothesis.
30
Although this thesis can’t confirm all the hypothesis considering positive or negative abnormal returns in the sub-samples, it found evidence that the abnormal returns differ significantly when the source of financing differs, using a Wilcoxon ranksum (Mann-Whitney) test. This thesis shows that bidder firms in all-cash deals financed with debt or mixed financing earn the highest abnormal returns, followed by free cash flow, leaving all-cash deals financed with equity proceeds with the lowest abnormal returns. Hence, this thesis is able to answer the question central to it; the source of cash does indeed affect the abnormal returns to the acquiring firm’s shareholders.
This thesis confirms existing literature on the method of payment and its effect on the abnormal returns, for both bidder and target firms. More interestingly, this thesis shows that the source of financing does also affect the abnormal returns, in case of an all-cash deal. Due to limitations mentioned earlier, caution in the interpretation is necessary. However, this thesis dares to state that all-cash deals financed with debt generate positive and significant abnormal returns which are higher than all-cash deals financed with free cash flow or equity proceeds. From the perspective of bidder firm shareholders, all-cash deals financed with debt are the most favorable.
Future research could improve this thesis by using a larger time period and perhaps also include takeovers with just a majority interest, to overcome the problems it faces with limited observations in one of the sub-samples. Furthermore, finding alternative methods to imply the source of financing would be recommended when using an extended dataset. Also, the assumption that debt issues and equity proceeds are used to finance takeovers does not take into account the actual amount of the debt issue or equity proceed. Further research on this topic should overcome this flaw. Finally, future research should focus on questions that arise from this thesis. What are the motives for firms to specifically finance an all-cash deal with a certain type of financing? Are their specific characteristics that define these firms? Do
31 target shareholders care or anticipate whether the cash they receive comes from a previous equity issuance or free cash flow? These are just a number of questions that can be answered in future research. Although only a few economic phenomena attract the same empirical research and public attention as corporate takeovers, some questions are still open for research.
32
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37
VII.
Appendix
A.
Graphs Of Announcement-Induced CAR’s
Graph 1. Announcement-Induced Cumulative Abnormal Returns of Bidder Firms in All-Deals
In this graph we plotted the CAR's of the event window [-10, 10] computed with Eventus software. -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 CAR
Graph 2. Announcement-Induced Cumulative Abnormal Returns of Target Firms in All-Deals
In this graph we plotted the CAR's of the event window [-10, 10] computed with Eventus software. -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 CAR
38
Graph 3. Announcement-Induced Cumulative Abnormal Returns of Bidder Firms in All-Cash Deals
In this graph we plotted the CAR's of the event window [-10, 10] computed with Eventus software. -0.20% -0.10% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 CAR
Graph 4. Announcement-Induced Cumulative Abnormal Returns of Target Firms in All-Cash Deals
In this graph we plotted the CAR's of the event window [-10, 10] computed with Eventus software. -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 CAR
39
Graph 5. Announcement-Induced Cumulative Abnormal Returns of Bidder Firms in All-Stock Deals
In this graph we plotted the CAR's of the event window [-10, 10] computed with Eventus software. -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 CAR
Graph 6. Announcement-Induced Cumulative Abnormal Returns of Target Firms in All-Stock Deals
In this graph we plotted the CAR's of the event window [-10, 10] computed with Eventus software. -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 CAR
