Does ownership concentration improve post-M&A performance in the Netherlands?

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Author: S.H. Schuller Student number: 10003261 Thesis supervisor: Dr. J. Lemmen Finish date: August 15th, 2017 UNIVERSITY OF AMSTERDAM MSc Finance

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PREFACE AND ACKNOWLEDGEMENTS

I want to say that writing a thesis is a process of many stages. Each stage has its own difficulties but with this particular thesis, getting the data together was the most challenging part. The data needed to be abstracted from different databases which did not work with the same company codes, so I had to go through the list and see whether there were corresponding companies. On a more personal level, I want to thank my family and friends who took care of me during the recovery of my knee surgery. I was very dependent on them and they motivated me to continue my research and finish this thesis.

NON-PLAGIARISM STATEMENT

By submitting this thesis the author declares to have written this thesis completely by himself/herself, and not to have used sources or resources other than the ones mentioned. All sources used, quotes and citations that were literally taken from publications, or that were in close accordance with the meaning of those publications, are indicated as such.

COPYRIGHT STATEMENT

The author has copyright of this thesis, but also acknowledges the intellectual copyright of contributions made by the thesis supervisor, which may include important research ideas and data. Author and thesis supervisor will have made clear agreements about issues such as confidentiality.

Electronic versions of the thesis are in principle available for inclusion in any EUR thesis database and repository, such as the Master Thesis Repository of the University of Amsterdam.

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ABSTRACT

Using firm level data from the Netherlands, the impact of a majority shareholder on post-M&A

performance has been examined. This thesis has implications for both M&A literature, which explains the role of agency conflict in the recurring failures of M&A events, and corporate governance, in context of a developed market. No strong results for the effect of a majority shareholder on post-M&A performance were found. Strong results were found however, for the impact of a foreign shareholder on post-M&A performance.

Keywords:

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LIST OF TABLES

Table 1 Types of M&A events 11

Table 2 Average of assets sorted by industry 12

Table 3 Impact of ownership and other firm and M&A characteristics on 13 industry adjusted firm performance

Table 4 Impact of ownership and other firm and M&A characteristics on 16 industry adjusted firm performance divided by time period

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LIST OF FIGURES

Figure 1 Distribution of M&A events across industries 11

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Introduction

In 2012, Sumon Kumar Bhaumik and Ekta Selarka, published a paper based on firm level data from India. They examined the relation between ownership concentration and post M&A performance in an emerging market. They didn’t find any strong results. As Fan, John Wei and Xu (2011) stated, emerging markets may be fundamentally different from developed countries. Therefore, I want to build on that paper and research whether the same results will arise in an evolved market, namely the Netherlands. They contributed to the existing literature by combining two phenomenon’s; post M&A performance and ownership concentration. In particular, whether a majority shareholder is present in the firm.

In M&A literature, it is argued that a takeover does not create value. Ravenscraft and Scherer (1989) test the efficiency theory of mergers by examining the industry adjusted operating performance of mergers. They don’t find any evidence for synergy creation at firm end level, one of the explanations for lack of value creation is the agency conflict. This conflict explains the differences in interests between owners and managers.

The first Agency Problem, which exists between owners and managers might be replaced with the second Agency Problem, which exists between the large and small shareholders. Agency Problem I exists when owners are not able to monitor the managers in such a way that they will consistently act in the best interest of the owners (Shleifer and Vishy, 1988). The managers will start to act in their own best interest instead in that of the shareholders. This problem is expected to resolve in case of a majority shareholder. Agency Problem I will resolve because the majority shareholder will have enough incentive to monitor the managers closely. This will force them to act in the best interest of the shareholders. It could be, that in case of a large shareholder, the first Agency Problem will be replaced with second Agency Problem. Agency Problem II exists when the large shareholder will act in its own best interest, which might contradicts with that of the smaller shareholders (Bhaumik and Selarka, 2012).

The methodology for this research will be on financial statement based measures. The balance sheets and profit and loss statements will be used to determine whether post-M&A performance has improved. Some adjustments must be made to compare profits. First, to ensure that profits are not manipulated by accounting principles, only Profit before interest and taxes (PBIT) and Profit before depreciation and taxes (PBDIT) is used. Second, the amount of profit is normalized by some measure of firms’ size, usually total assets. And third, the measure controls for industry effects by deducting from the normalized profit for each

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firm in the sample the normalized profit for the median firm of the corresponding industry. The adjusted measure is then used as a dependent variable in the regression (Bhaumik and Selarka, 2012).

The thesis will be structured as follows. In part II the related literature will be discussed, both aspects of post-M&A performance and corporate governance are discussed. The methodology will be explained in part III and the data and descriptive statistics in part IV. In results will be discussed in part V, followed by the robustness checks in part VI. And as final part the conclusion.

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Literature Review

There are two components to this research, namely post-M&A performance and corporate governance. In the first section, post-M&A performance will be discussed. In the second section, the corporate governance aspect.

2.1 Post-M&A Performance

The paper of Agrawal et al. (1992) focused on post-M&A performance, they used a sample of NYSE acquirers and NYSE/AMEX targets. Accounting for risk beta and firm size effects, their findings suggest that stockholders of acquiring firms experience a statistically significant wealth loss of about 10% over five years after the merger. As Jensen and Ruback (1983) stated: “These outcomes are inconsistent with market efficiency and suggest that changes in stock prices during takeovers overestimate the future efficiency gains from mergers.” Agrawal et al. (1992) mention three additional implications of this underperformance. The first is that the concept of efficient capital markets is a major paradigm in finance. The second implication is that much research on mergers examines returns surrounding announcement dates in order to infer the wealth effects of mergers. This approach implicitly assumes that markets are efficient, since returns in the period after the announcement are ignored. The third implication is that a finding of underperformance may also buttress certain studies showing poor accounting performance after takeovers. In the methodology part will be discussed that two performance measures will be used in this research; stock returns and accounting measures. Since the paper of Agrawal et al. (1992) state implications that question these measures, they’re to be treated with high caution.

As most of the articles published on post-M&A performance conclude that M&A deals fail to generate more wealth but still occur on a large scale, there could be an error in either the concept of efficient capital markets or the measurements of success of the M&A deal. Gomes, Angwin, Weber and Tarba (2012) state that researchers may not be looking at the right variables and should pay more attention to non-financial variables. It requires research on multidisciplinary aspects of a merger, such as integration strategies, post-acquisition leadership, speed of implementation etc. Besides that, Gomes et al. (2012) state that there might be an over-emphasis on either the pre-acquisition stage or post-acquisition stage that interferes with finding a consistent relationship between the stages. In the research of Weber, Tarba and Rozen-Bachar (2011) it is shown that the connection between pre- and post-merger stages is an important factor for post-M&A performance in general. Their study

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states that M&A deals who considered strategic and organizational fit factors before the merger, perform post-merger better than those who didn’t.

Another paper that explores new measures for M&A performance is that of Meglio and Risberg (2011). They want to challenge the dominant way of measuring performance in M&A deals and provide a different view to explain the contradicting outcomes of empirical research. They state that the problem with measuring M&A performance might not be in the poor construct measurement, the lack of new variables or the lack of consensus on how to approach the measurement of M&A deals, but the tendency to compare variables that are not comparable. If it is not clear what is meant by M&A performance and how it is measured, than it can be questioned how relevant the comparisons are. Meglio and Risberg (2011) conclude that in search for objectivity, researchers often use financial based measurements such as CAR because it’s assumed that those are a closer representation of the true performance. But as other papers state, non-financial variables are just as important to include in the measurement. However, if researchers constantly refer to papers where only financial based variables are used for objectivity, there is no room to include non-financial variables. Meglio and Risberg (2011) mention that in the few attempts to include non-financial variables, problems arose with the lack of clean market-based data, making it even harder to include those variables. Their final conclusion is that M&A performances are not an universal concept that can be researched in general, but is sensitive to contextual conditions.

2.2 Corporate Governance

Corporate governance is a collective name for the framework that consist of rules, relationships, systems and processes of an entity. It is set in process to promote investor confidence, which is an important part of the valuation of a company. It tries to build a bridge between ownership, which is the group of shareholders, and it’s management (ASX, 2014). It tries to solve the problems that come along with separation of ownership and control, for example, monitor managers closely before the start making decisions that benefit their personal life instead that of the investors.

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approach implies that an entity is responsible for its actions that effect the stakeholders. Stakeholders are all parties involved besides shareholders, including employees, customers, suppliers, political groups etc. This is a broader view than the shareholder approach which only protects the shareholder’s interest. The Dutch corporate law system is highly protective of stakeholders, it includes elements of employee contribution. It is lawfully obligated for large companies to include employees in appointing supervisory directors. Besides that, the Dutch corporate law also offers mechanism for hostile takeover strategies. This can be used not only to defend companies from other companies, but also reduces the influence that shareholders have on corporate encounters, an example of this are non-voting depositary receipts for shares and priority shares with special control rights (van Bekkum, et al., 2009).

Even though Dutch corporate law emphasises on the stakeholder approach, the role of the shareholder has become increasingly important (van Bekkem, et al., 2009). In 2004, Book 2 of the Dutch Civil Code (‘DCC’) included some changes in respect to shareholders. The first important one is the introduction of the authority of the shareholders meeting to approve major transactions that will have a material impact on the nature of the company. The second one is the new right of shareholders holding 1 percent of share capital or shares with a market value of € 50 million, to submit items for the agenda of the general meeting. Since the Corporate Governance Code works with comply-or-explain mechanism, the Enterprise Chamber of the Amsterdam Court of Appeal has the authority to order investigations into the affairs of companies and to order immediate measures to be taken for the duration of the proceedings.

2.2.2 Agency Problems

The classical theory on ownership states that the entrepreneur operates the firm to maximize profits. In this theory, the entrepreneur is also the manager, which means that he bears the risk he takes in operating the firm and therefor will always act in his own best interest (Fama, 1980). The article of Alchian and Demsetz (1972) brought new insight by viewing the firm as a set of contracts. The firm is viewed as a team in which agents act in their self-interest, but simultaneously realize that their gains depend on the survival of the team and how it competes with other teams. This means that agents are forced to create or keep a competitive advantage on other firms, they are disciplined within and outside the firm. However, this theory does not make a distinction between ownership and control, which in modern corporations is very common.

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The separation of ownership and control facilitates an situation in which a contract is needed. The shareholders, which are referred to as the principals, will benefit from the profits, but also bear the risks. The managers, which are referred to as the agents, are in control of the decision making and will benefit from compensation, but do not bear the risk. The situation in which agents acts in their own best-interest at the expense of the principals is called Agency Problem I (Bhaumik and Selarka, 2012). The assumption that has been made, is that the principals can’t monitor the actions of the agents completely. Even though the contract might be optimally designed to maximize value for the principals, the asymmetric information about the actions of the agents leaves room for non-value-maximizing behaviour (Shleifer and Vishny, 1988). It is stated that a majority shareholder might be the solution to this problem. A majority shareholder will have a strong incentive to monitor the actions of the managers closely because a significant part of the profit belongs to him. Villalonga and Amit (2006) however explain that Agency Problem II might arise between the large shareholder and smaller shareholders. The large shareholder could use its position to extract personal benefits from the company, at the expense of the small shareholders.

Bauhmik and Selarka (2012) state that strategic M&A deals could be a solution to both problems. If ownership concentration is in the hands of insiders-majority shareholders after the M&A deal, this is expected to reduce Agency Problem I and improve post-M&A performance. In addition they state that if post-M&A performance improves with high ownership concentration, it would be reasonable to conclude that high ownership concentration does not necessarily trigger Agency Problem II.

2.2.3 Ownership Concentration

Ownership concentration refers to the number of shareholders that own a certain amount shares in a company. In the paper of Demsetz and Lehn (1985) is discussed how ownership concentration is determined. In their study of 511 large US firms, the variation in ownership concentration is explained by considering the advantages and disadvantages of each structure. Theoretically speaking, if an shareholder starts to withdraw himself from the company, he could use his time and energy on other projects, only benefiting himself. If it is assumed that the shirking of the shareholder is costly to the company, this burden is shared among the other shareholders. They state in their paper that the more concentrated the ownership is, the greater the degree to which benefits and costs are born by the same owner (Demsetz and Lehn, 1985).

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Arab market, which is characterized by family firms and underdeveloped corporate governance. They test whether ownership concentration has an effect on firm performance. Conceptually there are two contradicting theories. On the one hand, it’s argued that when ownership and managerial interests are merged because of high concentration, firm performance is expected to improve. On the other hand, blockholders might use their powerful position in their own interest which could have an negative impact on the firm. The findings of Omran et al. (2008) on this topic are contradicting. In general, they did not find significant results using accounting based measures, but when they used market based measures, a significant relation between firm performance and ownership concentration was found. Besides that, Omran et al (2008) looked at ownership identity. They divided the large shareholders into four groups; individual investors, domestic institutional investors, government and foreign investors. When they tested for accounting based performance measures, they found that concentrated government ownership has a positive impact on firm performance. When they used market based performance measures, all types except for individual investors are positively and highly significant related to firm performance. This is line with the expectations of my research. I want to test whether ownership concentration has a positive effect on post-M&A performance.

If the null hypothesis about the positive impact of high ownership concentration on M&A performance cannot be rejected, it would be reasonable to assume that high ownership concentration improves post-M&A performance. As explained by Bhaumik and Selarka (2012) the identity of the large shareholder could have an effect on the firm performance, the second hypothesis therefor is about the effect of insider-majority shareholders. If the null hypothesis about the positive impact of insider-majority shareholder on post-M&A performance cannot be rejected, it is reasonable to assume that insider-majority shareholders improve post-M&A performance. Besides insiders, whether or not the shareholder is domestic could also have an effect on firm performance Omran et al (2008). The third hypothesis therefor is about effect of foreign shareholders on firm performance. If the null hypothesis about the positive effect of foreign shareholders on post-M&A performance cannot be rejected, it is reasonable to assume that foreign shareholders improve post-M&A performance.

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Methodology

My research will build on the research of Bhaumik and Selarka (2012) and therefor follow their methodology. In their paper they used two different methodologies to measure post-M&A performance. I’ve chosen to use one of these methodologies. This decision is made because of lack of available data and lack of time to gather the required data for all individual companies. This research will only use the financial statement based performance measure. As stated in Bhaumik and Selarka (2012), the usual measure of performance is profit. In order to use this performance measure, some adjustments have to be made. First, to avoid

influences of accounting practices, it is conventional to use PBIDT (profit before interest, depreciation and taxes) and PBIT (profit before interest and taxes). Second, the amount of profit needs to be normalised by the firms’ size, usually total assets. Lastly, the profit needs to be controlled for industry effects, since this can vary a lot across industries.

The financial statement based performance measure is the basis for examining the impact of ownership concentration on post-M&A performance. As defined in the paper of Bhaumik and Selarka (2012), the change in industry-adjusted profitability is between years T-1 and T+3, where T is the year of the M&A event.

The methodology of Dickerson et al. (1997) is adapted where a panel data analysis is used to specify the following regression:

The variables are defined as followed. PROFIT is the industry-adjusted measure of PBIT and PBDIT, MERGER is a dummy that takes the value of 1 for the first year and all other years after the M&A, OWNER are a set of ownership variables that might affect the hypotheses. The control variables are defined as MERGERCHAR, which are a set of characteristics of the merger, and FIRMCHAR, which are a set of time-variant firm characteristics.

Bhaumik and Selarka (2012) give explanation for the composition of the variables. First, the different aspects of a firm’s ownership are discussed. To identify if the shareholder has absolute control, a dummy is created for shareholders with more than 50 percent of the shares. Besides that, a dummy variable is created whether this majority shareholder is an

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Problem I increases post-M&A performance, the coefficients of the interactions between MERGER and the variables for majority shareholders, are expected to be positive.

To identify whether the shareholder is domestic or foreign, another dummy variable is included. As stated in the Bhaumik and Selarka (2012), a foreign shareholder could generate higher firm performance. This dummy makes no distinction in how many shares the foreign shareholder acquired. The coefficients between MERGER and the domestic ownership dummy are expected to be negative.

Secondly, the merger characteristics are discussed. If an M&A event occurs between firms from different industries, this could affect the outcome as oppose to firms from the same industry. Therefore, a dummy is included to control for M&A events between companies from the same 4-digit industry.

Final, the following variables are included to control for firm characteristics; firm age, firm size (the variable used is assets), leverage of the firm (the variable used is debt-equity ratio) and market power (the variable used is sales to overall turnover).

The sample can be divided between 1995-2004 and 2011-2013. Meaning data up to 2007 is included in the first time period, and data up to 2016 is included in the second. Since there was not much data on the first time period, the regression model will be used on the complete sample. In the robustness checks section, a distinction will be made for these different time periods.

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Data and descriptive statistics

Data has been collected from three different sources, namely, Thomson ONE, Amadeus from Bureau van Dijk and Zephyr. Data on M&A deals has been collected from Thomson ONE and Zephyr. From Amadeus in Bureau van Dijk, data on the specified companies has been abstracted. The following filters have been used to create the sample:

- The sample period has been restricted to 1995-2004 and 2011-2013. The first time period has been chosen to imitate the paper of Bhaumik and Selarka (2012) and to make the results somewhat comparable. The second time period has been added because of the low M&A events in our sample from 1995-2004. To enhance the size of the sample, the time period from 2011-2013 is included. In example of Bhaumik and Selarka (2012), the time period of 2008-10 is avoided, this is because during this time the global economic crisis occurred and this may have affected firms’ outcomes. - M&A events that occurred between two distinct firms have been deleted from the

sample. This means that mergers between financing and manufacturing firms and their parent companies have been excluded.

- M&A events that occurred between related firms however have been included. A dummy variable is created to control for unobserved factors that might affect outcomes of these M&A events.

The final sample includes M&A events involving 89 acquiring firms.

The industry distribution of the M&A events is reported in Figure 1. In the paper of Bhaumik and Selarka (2012), they only used M&A events from 3-digit industries. They did this to avoid industry specific factors. Unfortunately, the sample of my research is not large enough to make that distinction and maintain statistical power, therefor I included M&A events across 4-digit industries. As stated in the methodology section, a dummy is created to control for these industries. Besides that, firm’s PBIT and PBIDT are ratio adjusted to industry assets.

As stated above, the data has been collected from Thomson ONE, Amadeus and

Zephyr. Thomson ONE and Zephyr provided information about ownership concentration. The Thomson ONE database showed the percentage amount of shares in acquired in a transaction and the percentage amount of shares owned after the transaction. It states whether a deal was acquired by another company or by an individual. The synopsis gave additional information

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Figure 1. Distribution of M&A events across industries

Zephyr also provides information about ownership concentration. This database states how much percentage of the shares are acquired in a deal and whether or not this is an

management buy-in or out. So in our sample a distinction is made whether the M&A deal included an individual majority shareholder and whether that was a member of the board of directors. Besides that, a distinction is made whether this shareholder is domestic or foreign.

In Table 1 is shown how many M&A events included a majority shareholder and in how many cases that was a member of the board. In this table is also shown whether a shareholder is domestic of foreign. The amount of M&A events which included an majority shareholder have decreased from 91.0 percent in the first period, to 71.0 in the second time period, this also accounts for the insider-majority shareholders. However, we have to keep in mind that the sample of the first time period is only 11 companies, that these changes could be due to coincidence and no real conclusions can be drawn from this.

Table 1. Types of M&A events

Proportion of M&A events M&A event

1995-2004

M&A event 2011-2013

Number of observations 11 78

Majority shareholder (%)

Board members majority shareholder (%)

91.0 20.0 71.0 14.5 Shareholder is domestic (%) Shareholder is foreign (%) 72.7 23.3 67.0 33.0

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Table 2 shows the average of assets sorted by industry. Because of sample size limitations, M&A events from different industries are included. As shown, assets can vary across industries, for example, the average amount of assets in Media and Entertainment is 49 times smaller than the average in the Financials sector. To control for these differences in industries, the PBIT and PBIDT are ratio’s adjusted to the average of the industry assets.

Table 2. Average of assets sorted by industry

Types of industries Assets in € Firm Age Number of firms

Industrials 10,016,018 17 17

Consumer Products and Services 12,967,978 16 3

Financials 42,761,166 26.6 15

High Technology 11,394,138 22.4 11

Materials 6,143,486 19.2 13

Media and Entertainment 855,556 15.3 3

Real Estate 4,508,612 13.6 8

Retail 5,259,300 15 6

Telecommunications and Services 19,167,821 22.8 11

E-commerce 3,255,115 16.5 2

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Results

The results for the regression analysis are reported in Table 3. As explained, two different measures of performance are used, industry-adjusted ratios of PBIDT and PBIDT to assets. The coefficients are reported for M&A events from 1995-2013, which required data from 1994-2017. The F-statistics and adjusted R-squared values indicate that the regression fits the data reasonably well.

Table 3. Impact of ownership and other firm and M&A characteristics on industry adjusted firm performance

M&A events 1995-2013 PBIDT PBIT

M&A dummy 0.542***

(0.185)

0.545*** (0.184)

M&A dummy x Majority shareholder -0.154

(0.147)

-0.160 (0.148)

M&A dummy x Majority board member 0.155

(0.207)

0.164 (0.208)

M&A dummy x Foreign acquirer 0.351**

(0.139)

0.355** (0.141)

Control variable: Nature of M&A

M&A dummy x Related industry -0.315**

(0.132)

-0.321** (0.132)

Other control variables

Firm age -0.001 (0.003) -0.002 (0.003) Log assets -0.012 (0.020) 0.005 (0.020) Leverage -0.019*** (0.005) -0.016*** (0.005) Market Power -0.000 (0.000) -0.000 (0.000) Constant 0.087 (0.287) 0.014 (0.288) F-statistics 2.92*** 2.37** Adjusted R-square 0.0375 0.0270 Number of observations 445 445 Number of firms 89 89

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The coefficients estimates for PBIDT are reported in column 1. The results suggest that high concentration of ownership does not result in an increase in industry adjusted post-M&A performance. The coefficients for majority shareholders are insignificant, both in general as for board members. However, the results for foreign acquirer are significantly positive. This means that a foreign acquirer improves post-M&A performance. The M&A event itself has an statistically significant positive impact on post-M&A performance. This contradicts with the discussed literature. Agrewal et al (1992) concluded that M&A deals failed to generate value. In the paper of Bhaumik and Selarka (2012) however, their

coefficient for M&A deals was also significantly positive. In Dutch context this could mean that because of the well-regulated corporate governance, which creates high emphasis on the shareholder, and the possibility of being disciplined by the Enterprise Chamber of the

Amsterdam Court of Appeal, firms have become better in selecting targets and managing post-M&A performances.

To evaluate our hypotheses, the first hypothesis about the positive effect of a majority shareholder is rejected. The second hypothesis about the positive effect of an insider-majority shareholder is rejected. There is no statistical evidence that suggests that a majority

shareholder has a positive impact on post-M&A performance. The last hypothesis, about the positive effect of a foreign shareholder is accepted. There is enough statistical evidence to conclude that a foreign shareholder has a positive impact on post-M&A performance.

The coefficient estimates for PBIT are reported in the second column. There are some slight differences but the level of statistical significance are the same for all estimates. This means that hypotheses will be rejected and accepted in the same way as the model with PBIDT did.

The statistically insignificant effect of a majority shareholder can be explained in two different ways. The first is that even though an insider-majority shareholder has a slight positive effect, this does not reduce Agency Problem I (between managers and owners), and simultaneously does not increase Agency Problem II (between large and small shareholders), it influences are not visible. The second, more pessimistic explanation, is that an insider-majority shareholder may have eliminated Agency Problem I, but that positive effect is offset, by the negative effect on firm performance caused by Agency Problem II.

The control variables report that post-M&A performance is negatively affected by acquisition within the same 3-digit industry. This is surprising as generally it is expected that

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could be that the companies were too similar and possible synergies did not outweigh the costs. Firm age has an insignificant but negative effect on post-M&A performance. It could be that older firms are inflexible and therefore harder to manage (Bhaumik and Selarka, 2012). Firm leverage has a statistical negative effect on post-M&A performance. Which means a higher debt-equity ratio, has a significant negative effect on firm performance. This could be because a higher debt-equity ratio means a bigger risk. Taking additional debt could generate more earnings, but if the costs of debt outweigh the returns, in worst case scenario could lead to bankruptcy, leaving the shareholder nothing.

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Robustness checks

Table 4. Impact of ownership and other firm and M&A characteristics on industry adjusted firm performance divided by time period

M&A events 1995-2004 2011-2013

PBIDT PBIT PBIDT PIBT

M&A dummy 0.437*** (0.069) 0.771*** (0.105) 0.187 (0.167) 0.168 (0.168) M&A dummy x Majority shareholder -0.458***

(0.147) -0.803*** (0.110) -0.171 (0.168) -0.160 (0.164) M&A dummy x Majority board member -0.000

(0.054) -0.001 (0.082) 0.346 (0.256) 0.347 (0.257) M&A dummy x Foreign acquirer 0.016

(0.049) 0.028 (0.075) 0.454*** (0.161) 0.457*** (0.162)

Control variable: Nature of M&A

M&A dummy x Related industry -0.008 (0.058) -0.012 (0.088) -0.384** (0.149) -0.383** (0.150)

Other control variables

Firm age -0.001 (0.001) 0.002 (0.003) -0.002 (0.003) -0.002 (0.003) Log assets 0.002 (0.005) 0.003 (0.008) -0.019 (0.027) -0.011 (0.027) Leverage -0.000 (0.002) -0.000 (0.003) -0.022*** (0.006) -0.017*** (0.006) Market Power 0.000 (0.000) 0.000 (0.000) -0.000 (0.000) -0.000 (0.000) Constant -0.010 (0.060) -0.014 (0.090) 0.360 (0.402) 0.260 (0.403) F-statistics 5.93*** 7.97*** 3.10*** 2.49*** Adjusted R-square 0.5425 0.6146 0.0464 0.0333 Number of observations 55 55 390 390

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Table 4 reports the same regression analysis as in Table 3 but divided in separate time periods. In column (1) and (2) are the results for industry-adjusted ratios of PBIDT and PBIDT to assets in time period 1995-2004. Column (3) and (4) show the results for industry-adjusted ratios of PBIDT and PBIDT to assets for time period 2011-2013. As inspired by Bhaumik and Selarka (2012) in their paper, I wanted to check the differences between time periods. If we compare the results of Table 3 to Table 4, we see that the level of significance differs for the variables that we are most interested in, this raises questions.

Models reported in column (1) and (2) can be rejected because of the low amount of firms included in this sample. Even though this can be disregarded, it’s interesting to see that MERGER is significant in this time period, and it’s not in the second time period.

If we compare models (3) and (4) to Table 3, the F-statistic is still significant, it’s even a little higher. Also, the adjusted R-square is a little higher. Even though it’s higher, the model in Table 3 is still significant and there is no legitimate reason to disregard the data of the first time period. Therefore, I believe that Table 3 is a better representation of reality.

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Conclusion

This research started with the paper of Bhaumik and Selarka (2012), they researched the effect of ownership concentration on post-M&A performance in India in time period 1995-2004. They did not find any results that suggested that ownership concentration has an effect on post-M&A performance. The explanation might be that while Agency Problem I (between managers and owners) is reduced, Agency Problem II (between majority and minority

shareholders) could have offset that positive effect. This is an corporate governance matter and Bhaumik and Selarka (2012) stated India as an emerging economy where corporate governance is weak and where a lot of family firms exist. They stated that emerging markets may perform different than developed markets. Therefore, I wanted to perform a similar research in an environment which has a stronger corporate governance that is focused on creating value for the shareholders, namely the Netherlands (van Bekkem, et al., 2009).

I abstracted data from Thomson ONE, Amadeus from Bureau van Dijk and Zephyr. Thomson ONE and Zephyr provided information on ownership data and Amadeus provided information on financial statements of the selected companies. I used panel data to perform a regression with fixed effects.

Similar to the paper of Bhaumik and Selarka (2012), I did not find any results that suggests an positive effect of an majority shareholder on post-M&A performance. This is contradicting with the expectations because a majority shareholder is expected to reduce the first Agency Problem (Shleifer and Vishny, 1988). I did find that the M&A event itself was statistically significant and found enough evidence of a positive effect on post-M&A

performance. This contradicts with Agrawal et al. (1992), because they found results in which M&A deals were failing to improve post-M&A performance. Besides that, I found evidence that when the shareholder is foreign, this has a positive effect on post-M&A performance. This evidence is in line with literature from Omran et al (2008), which states that the identity of a shareholder has an positive effect on post-M&A performance.

The first limitation of this research is that it only used of one the two measures used by Bhaumik and Selarka (2012). I’ve chosen to limit my research to the financial statement based measure and leave out the market based measure. I’ve done this because of the lack of data available on stock values of companies that are not publicly traded. Besides that, when using the market based measure, it can be very error sensitive to find the exact announcement

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has limitations, it does measure the value for the shareholders more direct than the financial statement based measure. The latter measures profit but this does not necessary has to be paid out to the shareholders.

Second limitation of this research arrived with combining data from different databases. A lot of companies included in M&A deals that were in the Thomson ONE database, were not in Amadeus from Bureau van Dijk. This meant that many deals had to be excluded because of missing data.

Third limitation is that this research measured the M&A event and corresponding time periods in years. While going through the data I noticed that a deal made in January of year X was classified in the same year as a deal made in December. I believe that this causes noise in the data and think that a better solution would be to divide the data quarterly.

The last limitation that I will mention is that I only used financial statement based measures while literature suggests that non-financial variables might be one of the reasons to acquirer companies. As Meglio and Risberg (2011) stated, these variables are difficult to collect, but trying to find new variables or debating on how to measure M&A events in a different way is in my opinion the direction for future research.

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REFERENCES

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Bhaumik, S.K., Selarka, E. (2012). Does ownership concentration improve M&A outcomes in emerging markets? Evidence from India. Journal of Corporate Finance, 18, 717-726 Demsetz, H., Lehn, K. (1985). The structure of corporate ownership: causes and consequences. Journal of Political Economy, 93, 1155-1177

Fan, J.P.H., John Wei, K.C., Xu, X., (2011). Corporate finance and governance in emerging markets: A selective review and agenda for future research. Journal of Corporate Finance, 17, 207-214 Fama, F.E., (1980). Agency Problems and the Theory of the Firm. The Journal of Political Economy,

88, 288-307

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of Financial Economics, 11, 5-50.

Meglio, O., Risburg, A. (2011). The (mis)measurement of M&A performance – A systematic narrative literature review. Scandinavian Journal of Management 27, 418-433.

Omran, M., Bolbol, A., Fatheldin, A. (2008). Corporate governance and firm performance in Arab equity markets: Does ownership concentration matter? International Review of Law and

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Weber, Y., Tarba, S.Y., Rozen-Bachar, Z. (2011). Mergers and acquisitions performance paradox: the mediating role of integration approach. European Journal of International Management, 5 (4), 373-393.

Does ownership concentration improve post-M&A performance in the Netherlands?

PREFACE AND ACKNOWLEDGEMENTS

ABSTRACT

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

Introduction

Literature Review

Methodology

Data and descriptive statistics

Results

Robustness checks

Conclusion

REFERENCES