Influence of a company’s management style on
shareholder value in case of cross-border acquisitions
by
Hans Withaar
University of Groningen
Faculty of Economics and Business
Abstract
Over the last couple of decades there has been an abundance of acquisitions of which a significant number fail. This thesis investigates whether the similarity or difference in the management style of both the acquiring and the target company is one of the factors that determine the success of a cross-border acquisition by looking at abnormal announcement returns as a measurement for shareholder value. The expectation was that companies with a stewardship theory based management style would create shareholder value when they engaged in cross-border acquisitions and that it would have a negative effect on the
shareholder value for companies with an agency theory based management style. In contrast to these expectations the results show that companies that have an agency theory based management style experience a significant increase of shareholder value after the announcement of the acquisition. Companies that have a stewardship theory based management style show no such increase. A reason for this conclusion might be both
theoretical as well as methodological. Shareholders are more important in the agency theory based management style compared to the stewardship theory based management style and the share price is measured in the short-term and is a financial measure, which is also more important in the agency theory based management style.
Table of Content
1. Introduction and Problem Statement 6
1.1 Problem Statement 6 1.2 Research Questions 6 2. Literature Review 8 2.1 Shareholder Value 8 2.2 Cross-Border Acquisitions 9 2.3 Management Styles 12
2.4 Differences between Agency Theory Based Management Style (ATBMS) and Stewardship Theory Based Management Style (STBMS) 13
2.4.1 Model of man/behavior 14
2.4.2 Psychological factors 16
2.4.3 Situational factors 18
2.4.4 Board structure 21
2.4.5 Conclusions literature review 22
3. Hypotheses 24
4. Research Design 27
4.1 Research Method 27
4.1.1 Measuring management style 27
4.1.2 Measuring shareholder value 28
4.2 Data Collection 29
4.2.2 Collecting share prices 30
4.3 Data Analysis 31
5. Results and Discussion 33
5.1 Descriptive Results 33
5.1.1 Total sample 33
5.1.2 Agency Theory Based Management Style companies acquiring
similar Management Style companies 34
5.1.3 Stewardship Theory Based Management Style companies
acquiring similar Management Style companies 35
5.1.4 Agency Theory Based Management Style companies acquiring
Stewardship Theory Based Management Style companies 36
5.1.5 Stewardship Theory Based Management Style companies acquiring Agency Theory Based Management Style companies 37 5.1.6 Comparison of mean changes in share price 38
5.2 Hypotheses Testing 40
5.2.1 Agency Theory Based Management Style companies acquiring
similar Management Style companies 40
5.2.2 Stewardship Theory Based Management Style companies
acquiring similar Management Style companies 41
5.2.3 Agency Theory Based Management Style companies acquiring
Stewardship Theory Based Management Style companies 42
5.2.4 Stewardship Theory Based Management Style companies acquiring Agency Theory Based Management Style companies 43
5.2.6 Summary of hypothesis tests 44
5.3 Ad Hoc Analysis 45
5.3.1 Acquirer has an Agency Theory Based Management Style 46 5.3.2 Acquirer has a Stewardship Theory Based Management Style 48
5.4 Discussion 49
6. Conclusions and Further Research 52
6.1 Conclusions 52
6.2 Further Research 52
6.3 Limitations 53
References 54
1. Introduction and Problem Statement
Over the last couple of decades there has been an abundance of acquisitions of companies, both domestic as well as cross-border acquisitions. A significant percentage of these
acquisitions fail, depending on the industry from 50 to 80 percent. There are different reasons for these failures. This thesis investigates whether the management style of a company is one of the reasons, it will focus on the effect of differences in management style on the value of cross-border acquisitions. Much research has been done on the effects of cross-border acquisitions on the shareholder value (e.g. Doukas and Travlos, 1988; John, Freund, Nguyen and Vasudevan, 2010). The shareholder value is the value shareholders receive from owning shares of the company. It can be increased by increasing the stock price or paying out
dividend. Several studies address different aspects of cross-border acquisitions. Nevertheless there appears to be a gap when the theory of cross-border acquisition is combined with the theory about management styles. This research will investigate whether the management style of a company has an influence on shareholder value in the case of a cross-border acquisition. This is an interesting question, because it might be guidance for companies in the future when they are engaging in cross-border acquisitions and have to select which company to acquire. This thesis will focus on the Agency Theory Based Management Style (ATBMS), which is common in the English language countries, and the Stewardship Theory Based Management Style (STBMS), which is common in North-West continental Europe.
1.1 Problem Statement
Since there are apparent differences between management styles, the question is whether companies which engage in cross-border acquisitions show differences in shareholder value when they acquire a company with the same management style compared to when they acquire a company with a different management style. Therefore the central research question of this thesis will be:
1.2 Research Questions
In order to answer this central research question a number of research questions have to be answered. First of all there are some theoretical concepts that need clarifying. Therefore the first research questions are:
1. What are cross-border acquisitions?
2. What are the effects of cross-border acquisitions on shareholder value? 3. What are management styles?
4. What are the differences between the ATBMS and STBMS?
When those are answered data will be collected in order to answer the following research questions:
5. What is the effect of a cross-border acquisition on shareholder value in the case of an acquisition of a company with an ATBMS by a company with an ATBMS?
6. What is the effect of a cross-border acquisition on shareholder value in the case of an acquisition of a company with a STBMS by a company with a STBMS?
7. What is the effect of a cross-border acquisition on shareholder value in the case of an acquisition of a company with STBMS by a company with an ATBMS?
8. What is the effect of a cross-border acquisition on shareholder value in the case of an acquisition of a company with an ATBMS by a company with a STBMS?
When those research questions are answered, the central research question can be answered as well.
2. Literature Review
In this chapter the concepts shareholder value, cross-border acquisitions and management styles will be elaborated. Furthermore the differences between the ATBMS and the STBMS will be outlined.
2.1 Shareholder Value
The shareholder value is the value shareholders receive from owning shares of the company. Shareholder value can be increased by increasing the stock price or paying out dividend. So shareholder value is influenced by the performance of a company since this is related to the share price and the dividend. Bender and Ward (2002) identify shareholder value as the relation between required returns and perceived risk. In a perfectly competitive market, market forces would dictate that all investments would receive only their risk-adjusted
required rates of return (Bender and Ward, 2002). So when these are equal to each other there would be no extra value. Value is created when the level of expected returns of a firm
increases relative to its required rate of return, and/or when the level of systematic risk of the firm decreases without a proportional decrease in its expected level of return (Lubatkin and Chatterjee, 1991). Shareholders cannot achieve this on their own since the expected level of return and the required rate of return are linearly related to each other. When firms engage in diversification this linear relationship is not necessarily present. Accordingly it stands to reason that shareholder value is only increased by exploiting imperfections in the marketplace (Bender and Ward, 2002).
According to Bender and Ward (2002) there are seven drivers by which a manager can influence shareholder value. These are revenue, operating margin, cash tax rate, incremental capital expenditure, investment in working capital, cost of capital and competitive advantage period, the period in which the company has a competitive advantage. Competitive
2.2 Cross-border Acquisitions
An acquisition is the takeover of a company (the target) by another company (the acquirer). Acquisitions show a disproportion in the levels of control, in contrast to mergers where the levels of control are similar (Anslinger and Copeland, 1996). The acquirer becomes the owner of the target company, which seizes to exist legally. There are two types of acquisitions; domestic acquisitions and cross-border acquisitions. The focus here will be on the latter. There are different motives why foreign companies are acquired. Berkovitz and Narayanan (1993) identify these:
1) Expansion: through acquisitions companies can quickly react on strong market growth and capture a part of this growth.
2) Market entry: through acquisitions companies can enter a new market without extremely high initial expenses. It avoids the costs of market penetration and market development (Bleeke and Ernst, 1993). Furthermore it is a way to avoid protective measures by governments.
3) Scale: through cross-border acquisitions a company can achieve a critical mass in a short time. This is needed to keep up with the competitors.
4) Geographic: through acquisitions a company can spread its activities over different geographical areas, making it less vulnerable. Shareholders appreciate this because it adds to their portfolio.
5) Finance: through acquisitions a company can acquire a local cash cow. This cash cow can finance another ambitious project of the company.
6) Economies of skills: through acquisitions a company can benefit from the mutual exchange of experiences, skills, and capabilities within geographically spread segments (Jagersma, 2005).
possible sources of value to the shareholders. The first reason is that internally raised capital is less costly than externally capital. Furthermore managers have an overview of all the businesses and therefore can identify the most profitable for shareholder value ones and move the capital to there.
Carpenter and Sanders (2008) identify three types of acquisitions; through vertical, horizontal or complementary relationships. Vertical acquisitions include the acquisition of a company within the supply chain. The goal of vertical acquisitions is to secure a reliable supply, to reduce the total production costs and to leverage the resources and capabilities of upstream activities. Horizontal acquisitions include acquisitions of companies in the same industry. The goal of horizontal acquisitions is to expand the product offerings of the company.
Complementary acquisitions include acquisitions in order to complement and expand existing products.
In the literature it is clear that acquisitions have two main effects on the performance of a company. Acquisitions could generate anticompetitive effects (and/or coordinated effects by facilitating collusion among competing firms). The studies initiated by Salant, Switzer and Reynolds (1983) underline the limits of acquisitions strategies when they are only motivated by a higher market power. On the other hand, acquisitions are also driven by efficiency gains motives. Five main sorts of efficiency gains are usually listed: production rationalization (reallocation of production across firms); economies of scale and scope (decrease in average costs with a higher total output); technological progress (diffusion of know-how and
increasing R&D incentives); purchasing economies (lower input costs); lower slack (managerial and efficiency) (Bertrand and Zitouna, 2008).
The evidence concerning the effects of acquisitions on shareholder value is mixed. Some studies find a positive relationship (cross-border acquisitions enhance shareholder value) (Jarrel and Poulsen, 1989) whereas some find a negative relationship (cross-border
acquisitions reduce shareholder value) (Dodd, 1980) or fail to find a significant relationship (Raad and Wu, 1994). Brealey and Myers (2000) argue that diversification is easier and cheaper for the shareholder than for the corporation. This is because an individual shareholder can diversify easily by acquiring shares from different companies and thereby create a
portfolio which reduces the total risk of the investment. The theory about cross-border
is argued that it matters whether a target company is a public of private company. They also argue that the level of legal protection of minority shareholders has an influence. They conclude that for high-protection target countries, acquirer announcement-period returns are significantly negative for public targets and significantly positive for private targets. For low-protection target countries, the acquirer returns are significantly positive for public targets (John et al., 2010).
Doukas and Travlos (1988) argue that the abnormal returns, the difference between the expected return and the actual return, are larger when firms expand into new industry and geographic markets – especially those less developed than the US economy. They argue that the evidence is consistent with the theory of corporate multinationalism, which predicts an increase in the firm’s market value from the expansion of its multinational network.
Furthermore the literature on multinational companies (MNC) has investigated the impact of foreign presence on host countries. It traditionally considers that MNCs enjoy superior knowledge-based assets and competitive ownership advantages transferable to the host country market (Hymer, 1976). Thus, MNCs subsidiaries are expected to exhibit a higher productivity and profit compared to domestically owned firms. This assumption seems to be supported by the empirical work of Bertrand and Zitouna (2008). Here again it is argued that geographical diversification of activities enhances the productivity of a company.
A significant number of acquisitions fail. Depending on the industry the reported failure rates vary anywhere from 50 to 80 percent (Tetenbaum, 1999; Bryson, 2003; Erez-Rein, Erez, and Maital, 2004; Lodorfos and Boateng, 2006). There are a couple of reasons why acquisitions fail. One of the reasons is that the acquirer paid too much for the target company. Another reason is that the expected synergistic benefits are not reached. In this connection, lack of "strategic fit" and inappropriate management during the integration process are often cited as the primary reasons for poor performance in most acquisitions (Chatterjee, Lubatkin,
Schweiger, and Weber, 1992; Schüler and Jackson, 2001; Lodorfos and Boateng, 2006). Furthermore, many authors argue that incompatible cultures, loss of key talent, poor
communication, and reduced involvement of employees during the acquisition process are the primary reasons for the failure of acquisitions (Daniel and Metcalf, 2001; Evans and
It can be concluded that there are many different factors that determine whether a cross-border acquisition will enhance shareholder value. Therefore it is interesting to investigate whether a difference in management style has an influence on the success of an acquisition. 2.3 Management Styles
This section will identify the concept of management styles. A management style is the particular practice used to direct an organization. The concept of management styles comes from the overlapping concept of corporate governance, which is the system by which owners of firms direct and control the affairs of the firm (Carpenter and Sanders, 2008). Management styles can be defined as a set of related principles and practices guiding the management of functions such as strategy, production, finance, and personnel, in an organization. There is a wide variety in management styles between the extremes of control and consultation. In the developed countries there are two main management styles. Davis, Schoorman and Donaldson (1997) identify these as the agency theory based management style and the stewardship theory based management style. Avery (2005) refers to these as the Anglo/US management style and the Rhineland management style. The Anglo/US management style, which is consistent with the ATBMS, has its basis in the US and is the mainstream
management style in the English language countries (Avery, 2005). During the late 1970s and early 1980s stocks of companies which appeared to be undervalued in the US were bought by investment bankers in order to restructure the firm and release the hidden reserves, before selling the stocks again (Avery, 2005). This made the investment bankers rich and the focus of managers shifted toward maximizing shareholder value. Under Reagan the state retracted itself from the economy and the society, taxes were lowered, there were retrenchments in social services and health care and energy provision were privatized; the individual was given more freedom (Bakker, Evers, Hovens, Snelder and Weggeman, 2005). The idea was that everybody could become rich if you worked hard. In the United Kingdom Margaret Thatcher followed the same policy as Ronald Reagan did and also lowered taxes and privatized state-owned companies. According to Avery (2005) the basic principles of the Anglo/US
management style are:
1) The main goal of the organizational is to maximize the share price
3) Organizations should have transparent standards for accounting. 4) The validity of financial reports is controlled by experienced auditors.
5) Organizations should only invest in projects that bring a return significantly higher than the cost of capital.
The Rhineland management style, which is consistent with the STBMS, is the mainstream management style in North-West continental Europe (Bakker et al., 2005). Its name comes from a conference held in 1959 on the banks of the Rhine in Bad Godesberg in Germany. The STBMS takes more stakeholders into account. This means the interests of the shareholders, clients, suppliers, employees and the local community are taken into account (Avery, 2005). The Rhineland management style has its roots mainly in the north and west of continental (Bakker et al., 2005). After the Second World War the European economies needed to be built up again with the effort of and consultation of all social groups. The focus is more on long-term profits. Employees are seen as assets who need to be looked after like any other asset (Avery, 2005).
2.4 Differences between Agency Theory Based Management Style (ATBMS) and Stewardship Theory Based Management Style (STBMS)
TABLE 1
Comparison of Agency Theory and Stewardship Theory
Agency Theory Stewardship Theory
Model of Man Economic man Self-actualizing man
Behavior Self-serving Collective serving
Psychological mechanisms
Motivation Lower order/economic
needs (physiological, security, economic)
Higher order needs (growth, achievement,
self-actualization) Social comparison Other managers Principal
Identification Low value commitment High value commitment
Power Institutional (legitimate,
coercive, reward)
Personal (expert, referent)
Situational mechanisms
Management philosophy Control oriented Involvement oriented Risk orientation Control mechanisms Trust
Time frame Short term Long term
Objective Cost control Performance enhancement
Cultural differences Individualism High power distance
Collectivism
Low power distance Source: Davis et al., 1997
2.4.1 Model of man/behavior
According to Davis et al. (1997) a fundamental difference between the two management styles lies in the models of man both styles assume. The ATBMS has an economic approach to governance and tends to assume some form of homo-economicus, which depict people (agents, principles) as individualistic, opportunistic, and self-serving (Davis et al., 1997). The core of the ATBMS is agency theory that regards the model of man of a rational actor who seeks to maximize his or her individual utility (Jensen & Meckling, 1976). So both the
shareholders (principles) as well as the managers (agents) will try to increase their own utility. The STBMS on the other hand has a more sociological and psychological approach to
governance assuming people as collectivists, pro-organizational, and trustworthy (Davis et al., 1997).
their shareholders (Davis et al., 1997). The objective of the shareholders is to reduce these agency costs by using control mechanisms for the behavior of managers. The shareholders provide the money, which is their utility and they want to see this increased, and the managers are able to build their own utility at the expense of this. So the authority is delegated to the manager, but in order to minimize potential risk of abuse of this power by the management, control mechanisms are put in place.
One of the reasons to engage in cross-border acquisition is linked to the agency theory. There might be several reasons for managers to engage in acquisitions even though this is at the expense of the shareholder. Managers can pursue an increase in their compensation, power and prestige (Jensen, 1986). Shleifer and Vishny (1990a,b) conclude that another reason for managers is to secure their positions within the firm by making investments that require their particular skills. A third reason is to reduce the risk of the investment portfolio of the firm and thereby reducing the risk of the personal investment portfolio of the manager itself (Amihud and Lev, 1981). According to Walsh and Seward (1990) an organization is likely to lose sight of its competitive environmental position and will fail if a firm’s managers entrench
themselves with the sole objective of ensuring their own power, prestige and perquisites. The model of man that is dominant in the STBMS is that pro-organizational, collectivistic behavior has higher utility than individualistic, self-serving behaviors (Davis et al., 1997). A manager will stay in line with the interests of the company if he has a choice between individual utility and collectivist utility. So even when the interests of the manager and the shareholder diverge, the manager will opt cooperative behavior because he values this higher than defection (Davis et al., 1997). Because of this the behavior of a manager in the STBMS can be considered rational and collective because he pursues the objectives of the company. Given the potential multiplicity of shareholders’ objectives the behavior of a manager can be considered to be organizationally centered (Davis et al., 1997). So when a manager is
2.4.2 Psychological factors
Psychological factors are internal factors like thoughts, attitudes, feelings or other cognitive or affective characteristics that influence the behavior of managers. Here the psychological factors are motivation, social comparison, identification and power.
Motivation
In the ATBMS the focus is on lower order/economic needs and extrinsic motivation whereas in the STBMS the focus is on higher order needs and intrinsic motivation (Davis et al., 1997). These lower order needs include physiological and economic needs whereas the higher order needs include growth, achievement and self-actualization needs. Managers in the STBMS are motivated by needs that are positioned higher in the pyramid of needs designed by Maslow (1970). These include: the need for achievement and recognition, the intrinsic satisfaction of successful performance, respect for authority and the work ethic (Muth and Donaldson, 1998). In line with these needs the extrinsic motivation instruments are tangible and exchangeable commodities that have a quantifiable value, for example money or shares. The intrinsic motivation instruments are not that easy to quantify and are some non-financial motives. These rewards include growth, achievement, affiliation and self-actualization (Davis et al., 1997).
Another reason for managers in an ATBMS to perform well and thus keep the share price high is the threat of a hostile take-over (Melewar and Mott, 2003). The barriers against a hostile take-over are weak; the only way is to make it expensive for the potential bidder by sustaining a high share price and having high dividends for indecisive shareholders.
The manager in the STBMS knows there is a trade-off between the objectives of the company and his individual utility. Theorists on stewardship theory assume a strong relationship
Social comparison
The next psychological factor that differentiates both management styles is the social comparison managers use. In the ATBMS there is an economic – or class-related separation between the principal and the managers where the principal determines a fair market wage for the manager and arranges the compensation structure accordingly (Davis et al., 1997). In order to determine whether this compensation is fair managers compare themselves with other managers.
In the STBMS the principal would expect to be accountable to the collective for his or her contributions as much as the manager would be (Davis et al., 1997). The principal is part of the collective and therefore the managers compare themselves to the principal even though the contributions of both are different.
Identification
Another difference between the management styles is the level of identification of managers with the organization. Managers in the ATBMS have a lower level of identification whereas managers in the STBMS have a higher level of identification (or high commitment).
Identification occurs when managers define themselves in terms of their membership in a particular organization by accepting the organization’s mission, vision and objectives (Kelman, 1958; Mael and Ashforth, 1992), producing a satisfying relationship with the organization (O’Reilly, 1989; Sussman and Vecchio, 1982).
In the ATBMS managers have a lower level of identification and may externalize
organizational problems to avoid blame (D’Aveni and MacMillan, 1990; Staw, McKechnie and Puffer, 1983). Because they do not accept responsibility for the problems and therefore do not resolve the problem, the self-serving manager may make organizational problems worse (D’Aveni and MacMillan, 1990). Therefore the level of commitment is lower with the ATBMS.
On the other hand in the STBMS managers have a high level of identification and see comments about the company as comments on themselves, either positive or negative
work-related satisfaction when there is success in the organization. Therefore the level of commitment is higher with the STBMS.
Power
Another difference between the two management styles lies in the managers’ use of power. McCelland and Burnham (1976) define the power motive as a psychological need to influence others toward the accomplishment of valid and accepted organizational goals. Managers in the ATBMS use institutional power whereas managers in the STBMS use personal power.
Institutional power is a consequence of the position a manager has in the organization. Institutional power includes legitimate, coercive and reward power. Appropriate incentive systems and recognition of authority of the principal are combined to create the required level of control in the relationship (Davis et al., 1997). Coercive power is also used to control the manager by threatening with resignation.
Personal power is a consequence of the personality of the manager. Personal power includes expert and referent power. This means people are valued not for their position in the
organization, but for their expertise. People do not need a high formal function to be included in the dialogue. Personal power takes more time to develop, but is more sustainable in the long run.
2.4.3 Situational factors
Situational factors are external factors which influence the behavior of managers. In the overview by Davis et al., (1997) the situational factors are management philosophy, risk orientation, time frame, objective and cultural differences.
Management philosophy
whereas the STBMS has an involvement oriented management philosophy. According to Lawler (1986, 1992) the control oriented management philosophy is based on the premises that the thinking and controlling part of the work must be separated from the doing part of work. Involvement oriented management philosophy is based on control and
self-management and do not create a separation between thinking, controlling and doing the work.
Risk orientation
There is also a difference in risk orientation of both management styles. The objective in agency theory is to reduce risks and agency costs incurred by shareholders by imposing internal controls to keep the manager’s self-serving behavior in check (Jensen and Meckling, 1976). One of the mechanisms that shareholders put in place to control the managers in the ATBMS is a financial incentive scheme, which ensures the alignment of shareholder and manager interests (Davis et al., 1997). The reasoning here is that managers get a
compensation when the objectives of the shareholders are met. Therefore the goals of the managers will be the same as those of the shareholders. These schemes include rewarding managers with shares, perhaps at reduced prices, so the financial interest of the shareholder and the manager are aligned. A second mechanism is governance structure, which implies that boards of directors keep potentially self-serving managers in check by performing audits and performance evaluations (Davis et al., 1997). The focus is on controlling managers and employees. Another consequence is the use of financial targets throughout the company to evaluate the performance of managers. This is linked with bonuses of managers, making the behavior of the managers controlled by financial goals.
In the STBMS the focus is on structures that facilitate and empower rather than monitor and control (Davis et al., 1997). When confronted with challenges and responsibilities a manager will develop self-control of their behavior (Davis et al., 1997). The focus is on trusting the managers and employees.
Time frame
In the ATBMS the shareholder has the dominant position within a company. The interests of the shareholder, which mostly is short-term profit maximization, are dominant in the
considerations of the management. If these short-term profits are not realized the shares will be sold, which leads to decreasing share prices. This puts pressure on the managers, who have to realize a better performance almost every quarter. One of the measures management takes to achieve this is by cutting costs. Processes are being standardized so they can be controlled by strict procedures.
The STBMS on the other hand assumes that maximization of profit on the short term damages other stakeholders and the long-term business of the organization. More stakeholders are taken into account. This means the interests of the shareholders, employees, customers, suppliers, society and nature are taken into account. The STBMS has attention for Profit, People and Planet (Bakker et al., 2005). The focus is more on the long-term.
Hillman and Keim (2001) conclude that building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder value by helping firms develop intangible, valuable assets which can be sources of
competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value for shareholders.
Objective
Another situational factor that differentiates both management styles lies in their objective. In the ATBMS the objective is cost control whereas in the STBMS the objective is performance enhancement.
Cultural differences
Another difference between the two management styles lies in culture. Hofstede (1980, 1991) described culture as national cultures, but these national cultures influence the organization culture and therefore also the management style. Hofstede (1980, 1991) described the concepts of individualism versus collectivism and power distance. Individualism is characterized as the emphasis of personal goals over group goals and collectivism is
characterized as the emphasis of group goals over personal goals (Davis et al, 1997). Power distance is the extent to which less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally (Hofstede, 1991). The
ATBMS is more individualistic and has a higher power distance whereas the STBMS is more collectivistic and has a lower power distance.
In cultures with a high power distance less powerful members accept the dependence on the more powerful members and the rank is openly demonstrated. Organizations are centralized and they include large differences in authority, salary and privileges between those at the top and those at the bottom (Davis et al., 1997). There is more inequality between shareholders and managers.
In cultures with a low power distance the less powerful members are more independent and are treated with more respect by the more powerful members. Organizations are decentralized and there are fewer differences in authority, salary and privileges, the focus is more on
equality.
2.4.4 Board structure
The STBMS has a two tier board system in which the power is divided between a
management board and a supervisory board. The other stakeholders also have influence and there is more consultation to get to a solution that fits most stakeholders. Often other
stakeholders have a role in the supervisory board (Bakker et al., 2005). Therefore it is much more difficult for director of the management board to abuse the power he has. But since the manager in the STBMS prefers the goals of the company over his own goals, there is less necessity for monitoring and control, reducing the agency costs. Therefore the CEO can focus on facilitating and empowering (Davis et al, 1997).
2.4.5 Conclusions literature review
In this section the conclusions drawn from the literature review will be stated. From this the hypotheses will be derived. From the review of cross-border acquisition literature it can be concluded that a large proportion of the acquisitions fail. Many factors influence the success of cross-border acquisitions, but is the similarity or difference of the management styles of the acquirer and the target one of them?
As shown above there are a lot of differences between the ATBMS and the STBMS. The most fundamental differences between the two are the result of the model of man they use. The ATBMS uses an economic model of man where managers pursue self-serving goals whereas the STBMS uses a sociological and psychological model of man in which the manager is more collectivistic. The different models of man result in higher cost for companies with an ATBMS because of the agency problem. Furthermore managers in the ATBMS might engage in acquisitions for other reasons than maximizing shareholder value. Both reasons can reduce shareholder value. Managers in the STBMS will pursue the goals of the organization even in the case their personal goals diverge from this.
From the situational factors it can be concluded that in a company with a STBMS the focus is on helping the manager to do his job as well as he can and thereby maximize profit for the company whereas in a company with an ATBMS the focus is on ensuring that the manager stays in line with the objectives of the shareholder. Another big difference is the short-term focus versus long-term focus. By developing longer-term relationships with primary
3. Hypotheses
In this chapter hypotheses will be formulated. These are based on the conclusions from the literature review.
Hypothesis 1
Because the increase in agency costs a company with an ATBMS seems to be less able to create shareholder value through a cross-border acquisition. Therefore the expectation is that a cross-border acquisition of a company with an ATBMS by a company with an ATBMS has a negative effect on the shareholder value.
H1: An Agency Theory Based Management Style company acquiring a similar Management Style company will result in a decrease in its shareholder value
H1,1: (CompanyATBMS CompanyATBMS) SVdecrease
H1,0: (CompanyATBMS CompanyATBMS) SVno change
Hypothesis 2
The general conclusion from the literature review is that the STBMS is more capable to create sustainable shareholder value than the ATBMS. Therefore, the expectation is that a cross-border acquisition of a company with a STBMS by a company with a STBMS has a positive effect on the shareholder value.
H2: A Stewardship Theory Based Management Style company acquiring a similar Management Style company will result in an increase in its shareholder value H2,1: (CompanySTBMS CompanySTBMS) SVincrease
Hypothesis 3
Furthermore the expectation is that a cross-border acquisition of a company with a STBMS by a company with an ATBMS has a negative effect on shareholder value because of the increase in agency costs and the lack of cultural fit makes it even more difficult. Furthermore the target company is likely to shift towards the ATBMS which is not profitable to shareholders,
decreasing shareholder value.
H3: An Agency Theory Based Management Style company acquiring a Stewardship Theory Based Management Style company will result in a decrease in its shareholder value H3,1: (CompanyATBMS CompanySTBMS) SVdecrease
H3,0: (CompanyATBMS CompanySTBMS) SVno change
Hypothesis 4
The lack of cultural fit might also be a reason for the effect of the cross-border acquisition of a company with an ATBMS by a company with a STBMS to be negative. On the other hand in time it can be expected that the manager with an ATBMS shifts towards a more STBMS which is more profitable to shareholders. Because of the higher levels of identification, the trust in the managers and the long-term relations with primary stakeholders these companies will be able to create more sustainable competitive advantages, resulting in better
performance and therefore increasing shareholder value.
H4: A Stewardship Theory Based Management Style company acquiring an Agency Theory Based Management Style company will result in an increase in its shareholder value H4,1: (CompanySTBMS CompanyATBMS) SVincrease
TABLE 2
Overview of hypotheses Hypothesis Management style
of the acquiring company Management style of the target company Expected change in shareholder value
Hypothesis 1 Agency theory based management style
Agency theory based management style
Negative change Hypothesis2 Stewardship theory
based management style Stewardship theory based management style Positive change
Hypothesis3 Agency theory based management style
Stewardship theory based management style
Negative change
Hypothesis4 Stewardship theory based management style
Agency theory based management style
4. Research Design
In this chapter the research design will be described. First the research method will be described followed by the data collection and the tests used to analyze the data.
4.1 Research Method
The relationship between cross-border acquisitions and shareholder value is under
investigation. This relationship is not always positive or negative, it is influenced by many factors. In this research the question is whether this relationship is also influenced by the similarity or difference in management style between the acquirer and the target company, and if so what the relationship is. In this chapter the research method is explained. First, the way management style and shareholder value are measured is explained.
4.1.1 Measuring management style
In order to measure the management style of a company one would need to go in-depth into the company to analyze all the aspects of management style by collecting data from many people. Since I am interested in comparing large groups of acquisitions with each other an in-depth survey to measure the management style of all companies is not feasible. Therefore in this research I have used a proxy-variable to determine the management style of a company. A proxy variable is measurable variable which replaces a variable that is not measurable. The two should have a high level of correlation.
Since the management styles are most dominant in a certain geographical areas the country of origin is a proxy variable for management style. As stated in the literature review ATBMS is most dominant in English speaking countries and STBMS is most dominant in the North-West of continental Europe. The Netherlands has been excluded because the ATBMS has gained much more popularity during the last years. Bezemer (2010) concluded that of the companies which are stock listed the percentage of companies which had an ATBMS
legislation. The table below is an overview of which countries belong to which management style.
TABLE 3
Countries assigned to management style
4.1.2 Measuring shareholders’ value
It is common to measure shareholder value by looking at the abnormal announcement returns, see for instance Doukas and Travlos (1988). Bender and Ward (2002) identify shareholder value as the relation between required returns and perceived risk. In a perfectly competitive market, market forces would dictate that all investments would receive only their risk-adjusted required rates of return (Bender and Ward, 2002). Shareholder value can be increased by increasing the stock price or paying out dividend. An abnormal return is the difference between the expected return and the actual return of a security. So an abnormal return occurs when the market is not perfectly competitive. One of the events that can trigger abnormal returns is an acquisition.
So by looking at fluctuations of the stock price before and after the announcement of the cross-border acquisition the increase in shareholder value can be measured. The stock prices are official, open-published documents.
This research will focus on the bidder returns and exclude the target returns since the
influence of the similarity/difference in management style is measured and therefore only the bidder returns are interesting.
Furthermore two different time periods will be considered to measure the change (increase, decrease, none) in shareholder value. The first period is the change in share price one day Agency theory based management style Stewardship theory based management
style
Australia Austria
Canada Belgium
Ireland Denmark
United Kingdom Finland
United States France
before and after the announcement of the acquisition. Since the timespan here is only 2-days, the incident of the announcement can be isolated. Because of this there are few other factors that have an influence on the share price other than the announcement of the acquisition, meaning that the spuriousness is minimized.
The second period is the change in share price one month before and after the announcement of the acquisition. This 2-months period is interesting to test the long-term effect of the announcement of the acquisition. Furthermore often there is already some degree of
knowledge of the acquisition before the actual announcement of it. By taken a time period of 2-months this can be minimized as well.
4.2 Data Collection
The data collection consisted of two phases; first the acquisitions needed to be selected and next the fluctuations in share prices had to be investigated. This research relies on secondary data. A sample was drawn from a large database in order to discover patterns, called data mining. The total population consists of all the cross-border acquisitions that have occurred within the four different groups ((CompanyATBMS CompanyATBMS), (CompanySTBMS
CompanySTBMS), (CompanyATBMS CompanySTBMS), (CompanySTBMS CompanyATBMS)),
so the unit of analysis is an individual company. Not all of these are known in the database about acquisitions called Zephyr, which is used to identify the acquisitions, so the sampling frame is smaller than the total population. Because of this it is not clear how large the total population is. From this database the sample is drawn, which was probability sampling because the cases were randomly selected. The element selection was unrestricted, which makes this sample design simple random. This sampling method was selected because this gives the most objective results.
4.2.1 Selecting acquisitions
1) Percentage of stake: percentage of final stake 100%
This criterion was selected because it had to be a total acquisition (final stake 100%) to be sure that the acquirer was able to impose his own management style on the target completely.
2) Country: see table 3 (see paragraph 4.1.1) are acquirer or target
This criterion was selected to ensure that at least the acquirer or the target of both were from the selected countries, to make sure at least one of the management styles was present in the acquisition.
3) Deal status: completed
Only completed deals were selected in order to be sure that the data about the share price was also available.
4) Deal value: all deals with known value
This criterion was selected to increase the number of acquirers which were listed on a stock exchange. Companies which are not listed have the option to keep the value of the deal to themselves whereas companies which are listed on a stock exchange are obligated to publish the value.
The results were sorted by deal value so the deals with the greatest value are considered first. This is done because these have the biggest influence on the acquirer. This might bias the results a little, but when a big company acquires a very small company, it hardly has any influence on the share price. A lot of acquisitions remained (about 50.000), but most of them are outside the scope of this research since a lot are domestic acquisitions or acquisitions involving other countries. Furthermore only 100% acquisitions were considered, not the ones that increased the stake to 100% or the institutional buy-outs. The announcement dates of the acquisitions which were within the scope of this research were collected (for a list of the acquisitions in this research see appendix I).
4.2.2 Collecting share prices
The variable of interest is the mean of the percentage of change in share price of a group, which can be used to analyze which group of acquisitions has an effect on shareholder value. The percentage of change of the share price is a ratio scale. The type of acquisition, the four groups, is a nominal scale. So the independent variable has a nominal scale and the dependent variable a ratio scale. The mean of the sample is used to estimate the population mean. When the announcement date was known the share price of the acquirer around that period (2-days and 2-months around the announcement) was collected from Datastream. This was done by looking up the acquiring company and then gaining a list of share prices from the period around the announcement of the acquisition. There were some cases that had to be eliminated in Datastream because of a number of reasons:
1) The company was not known by Datastream; 2) The share price was not available in Datastream;
3) The company had the same single share price all the time in Datastream;
4) The company did not have the same country of origin or was listed in another country according to Datastream compared to Zephyr.
If some acquisitions had to be eliminated because of these problems, Zephyr was consulted again and the case was replaced by another one.
4.3 Data Analysis
When the data were collected they were analyzed using the statistical program SPSS in order to test the hypotheses.
First descriptive analysis was performed in order to get an overview of the change in share price in the sample. Information about the number of cases, the mean change in share price, the standard deviation, the minimum and the maximum change in share price and normality is collected for the total group as well as for the four groups ((CompanyATBMS
(CompanySTBMS CompanyATBMS)). Furthermore, since the main focus is on the mean
change in the share price around the announcement of the acquisition, two figures have been created to visually compare the means of the groups for both the 2-days period as well as the 2-months period around the announcement of the acquisition.
It was clear here that there was a problem with the normality of the group (CompanyATBMS
CompanyATBMS) and two outliers had to be eliminated in order to assume sufficient normality
of the sample (see appendix V for a histogram of the normality of the total sample).
Next one-sample T-tests were conducted to analyze whether the change in share price of the four groups ((CompanyATBMS CompanyATBMS), (CompanySTBMS CompanySTBMS),
(CompanyATBMS CompanySTBMS), (CompanySTBMS CompanyATBMS)) and the total
5. Results and Discussion
In this chapter the results of the analyses will be presented. First the descriptive results of the total sample as well as the separate groups will be presented. Next the results of the
hypotheses tests are presented. After that the results will be discussed.
5.1 Descriptive Results
In this paragraph the descriptive results of the total sample as well as the four different groups will be presented. The number of observations, the mean change in share price, the minimum and maximum, the standard deviation and the normality figures will be presented. After that the mean changes of the different groups will be compared.
5.1.1 Total sample
TABLE 4
Descriptive statistics of the change in share price of the total sample
Period 2-days 2-months
Number of observations 200 198
Mean change in share price 0,54 2,32
Minimum -12,21 -42,68
Maximum 18,83 54,44
Standard Deviation 5,56 14,76
Skewness 0,45 0,47
Kurtosis 0,70 1,13
Table 4 shows that two observations had to be eliminated from the data for the 2-months period around the announcement of the acquisition. This was due to the fact that the level of kurtosis, which one of the indications for normality of the sample (together with skewness), was too high in the group (CompanyATBMS CompanyATBMS) (3.96). The kurtosis measures
Furthermore the means of both groups are positive. When looking at the 2-days period around the announcement of the acquisition the mean increase of the share price is 0.54 percent and for the 2-months period this increase is 2.32 percent. The standard deviations for the 2-days period and 2-months period around the announcement are respectively 5.56 and 14.76. 68 percent of all observations are one standard deviation from the mean (positive and negative side of the mean), and 95 percent of all observations are within two standard deviations from the mean.
For the 2-days period around the announcement the minimum change, or maximum decrease of the share price is -12.21 percent. The maximum change, or maximum increase of the share price is 18.83 percent, meaning that range is 31.04 percent. For the 2-months period around the announcement the maximum decrease of the share price is 42.68 percent and the
maximum increase of the share price is 54.44 percent, meaning that the range is 97.12 percent.
5.1.2 Agency Theory Based Management Style companies acquiring similar Management Style companies
TABLE 5
Descriptive statistics of the change in share price of Agency Theory Based Management Style companies acquiring similar Management Style companies
Period 2-days 2-months
Number of observations 50 48
Mean change in share price -0,22 4,38
Minimum -10,07 -16,65
Maximum 15,48 46,75
Standard Deviation 5,36 12,98
Skewness 0,64 1,10
Kurtosis 0,69 1,73
4.38 meaning an increase of the share price by 4.38 percent. The standard deviation for the 2-days period is 5.36 percent meaning that 68 percent of all observations are between a decrease of the share price of 5.48 percent and an increase of the share price of 5.14 percent. For the 2-months period 68 percent of the observations are between a decrease of the share price of 8.60 percent and an increase of 17.36 percent.
For the 2-days period around the announcement of the acquisition the maximum decrease is 10.07 percent and the maximum increase is 15.48 percent, meaning the range of the sample is 25.55 percent. For the 2-months period the maximum decrease of the share price is 16.65 percent and the maximum increase is 46.75, meaning the range is 63.40 percent.
5.1.3 Stewardship Theory Based Management Style companies acquiring similar Management Style companies
TABLE 6
Descriptive statistics of the change in share price of Stewardship Theory Based Management Style companies acquiring similar Management Style companies
Period 2-days 2-months
Number of observations 50 50
Mean change in share price -0,17 1,21
Minimum -12,21 -29,18
Maximum 8,12 33,38
Standard Deviation 4,33 13,01
Skewness -0,54 0,13
Kurtosis 0,44 -0,26
The maximum decrease of the share price for the 2-days period around the announcement of the acquisition is 12.21 percent and the maximum increase in this period is 8.12 percent, meaning that the range of this period is 20.33 percent. For the 2-months period the maximum decrease of the share price is 29.18 percent and the maximum increase is 33.38 percent, meaning a range of 62.56 percent.
Furthermore the ratings of the skewness and kurtosis are reasonable enough to assume normality for this group.
5.1.4 Agency Theory Based Management Style companies acquiring Stewardship Theory Based Management Style companies
TABLE 7
Descriptive statistics of the change in share price of Agency Theory Based Management Style companies acquiring Stewardship Theory Based Management Style companies
Period 2-days 2-months
Number of observations 50 50
Mean change in share price 2,29 6,35
Minimum -11,84 -42,68
Maximum 18,83 54,44
Standard Deviation 6,82 17,95
Skewness 0,39 0,21
Kurtosis -0,04 0,87
Table 7 shows that for both time periods the mean change in share price is positive, meaning an increase of the share price in both cases. For the 2-days period around the announcement of the acquisition the mean increase of the share price is 2.29 percent. The standard deviation shows that 68 percent of all observations are between a decrease of the share price of 4.53 percent and an increase of 9.11 percent. The mean increase of the share price for the
The ratings of the skewness and the kurtosis are sufficient to assume normality for both time periods.
5.1.5 Stewardship Theory Based Management Style companies acquiring Agency Theory Based Management Style companies
TABLE 8
Descriptive statistics of the change in share price of Stewardship Theory Based Management Style companies acquiring Agency Theory Based Management Style
companies
Period 2-days 2-months
Number of observations 50 50
Mean change in share price 0,26 -2,57
Minimum -11,01 -32,28
Maximum 14,23 36,62
Standard Deviation 5,21 13,28
Skewness 0,11 0,29
Kurtosis 0,46 1,23
Table 8 shows that for the 2-days period the mean change in share price is 0.26, meaning an increase of the share price by 0.26 percent. The standard deviation for this time period is 5.21, meaning that 68 percent of the observations are between a decrease of the share price of 4.95 percent and an increase of 5.47 percent. For the 2-months period there is a negative mean change in share price of 2.57 percent, meaning a decrease in share price of 2.57 percent. The standard deviation is 13.28, meaning that 68 percent of the observations are between a decrease of the share price of 15.85 percent and an increase of 10.71 percent.
For the 2-days period the maximum decrease of the share price is 11.01 percent and the maximum increase is 14.23, meaning there is a range of 25.24 percent. For the 2-months period the maximum decrease is 32.28 percent and the maximum increase is 36.62 percent, meaning a range of 68.90 percent.
5.1.6 Comparison of mean changes in share price FIGURE 1
Mean change in share price for the 2-days period around announcement
Figure 1 shows the mean change in share price for the 2-days period around the
announcement of the acquisition. It shows that the group CompanyATBMS CompanySTBMS
has the biggest increase of the share price. Furthermore it shows that the groups that acquire a company with the same management style (CompanyATBMS CompanyATBMS and
FIGURE 2
Mean change in share price for the 2-months period around the announcement
Figure 2 shows the mean change in share price for the 2-months period around the announcement of the acquisition. Again it shows that the group CompanyATBMS
CompanySTBMS has the biggest increase in share price. Furthermore it shows that for this time
period the two groups that acquire a company with the same management style experience an increase in share price. The only group that shows a decrease in share price is CompanySTBMS
5.2 Hypotheses Testing
In this chapter the results of the hypothesis tests will be presented. One-sample t-tests have been done in order to analyze whether the mean change of the different groups is significant. For this test the test variable is the change in share price for both time periods. And since the objective is to test whether the increase or decrease is significantly different from zero, the test value is 0. The confidence level is 95 percent.
5.2.1 Agency Theory Based Management Style companies acquiring similar Management Style companies
TABLE 9
Analysis of the change in share price of Agency Theory Based Management Style companies acquiring similar Management Style companies
Period Number of observations Mean change in share price Standard Deviation Standard Error Mean t-value df Significance (1-tailed) 2-days 50 -0.22 5.36 0.76 -0.29 49 0.39 2-months 48 4.38 12.94 1.87 2.34 47 0.01*
*t-value is significant at alpha = 0,05
Table 9 shows that for the 2-days period the mean decrease of the share price is 0.22 percent. There was no significant change in mean share price for the total 2-days group (M=-0.22, SD=5,36); t (df=49) = -0.29, p = 0.39. So the decrease is not significantly different from zero. The 2-months period has a mean increase of the share price around the announcement of 4.38 percent. There was a significant change in mean share price for the total 2-months group (M=4.38, SD=12.94); t (df=47) = -0.29, p = 0.01. Thus this increase is significantly different from zero.
5.2.2 Stewardship Theory Based Management Style companies acquiring similar Management Style companies
TABLE 10
Analysis of the change in share price of Stewardship Theory Based Management Style companies acquiring similar Management Style companies
Period Number of observations Mean change in share price Standard Deviation Standard Error Mean t-value df Significance (1-tailed) 2-days 50 -0.17 4.33 0.61 -0.29 49 0.39 2-months 50 1.21 13.01 1.84 0.66 49 0.26
Table 10 shows that the mean decrease in share price for the 2-days period of 0.17 percent. There was no significant change in mean share price for the total 2-days group (M=-0.17, SD=4.33); t (df=49) = -0.29, p = 0.39. So this decrease in share price is not significantly different from zero.
For the 2-months period the mean is 1.21, meaning that the share price increased 1.21 percent around the announcement of the acquisition. There was no significant change in mean share price for the total 2-months group (M=1.21, SD=13.01; t (df=49) = 0.66, p = 0.26. So this increase is not significantly different from zero.
So for the companies with a STBMS which acquire a company with a similar management style the changes in share price around the announcement of the acquisition are not
5.2.3 Agency Theory Based Management Style companies acquiring Stewardship Theory Based Management Style companies
TABLE 11
Analysis of the change in share price of Agency Theory Based Management Style companies acquiring Stewardship Theory Based Management Style companies Period Number of observations Mean change in share price Standard Deviation Standard Error Mean t-value df Significance (1-tailed) 2-days 50 2.29 6.82 0.97 2.37 49 0.01* 2-months 50 6.35 17.95 2.54 2.50 49 0.01*
*t-value is significant at alpha = 0,05
Table 11 shows that the mean increase of the share price for the 2-days period is 2.29 percent. There was a significant change in mean share price for the total 2-days group (M=2.29, SD=6.82); t (df=49) = 2.37, p = 0.01. So the increase in share price is significant.
For the 2-months period there was also a significant change in mean share price for the total 2-day group (M=6.35, SD=17.95); t (df=49) = 2.50, p = 0.01. So this increase of the share price around the announcement of the acquisition is significant as well.
5.2.4 Stewardship Theory Based Management Style companies acquiring Agency Theory Based Management Style companies
TABLE 12
Analysis of the change in share price of Stewardship Theory Based Management Style companies acquiring Agency Theory Based Management Style companies Period Number of observations Mean change in share price Standard Deviation Standard Error Mean t-value df Significance (1-tailed) 2-days 50 0.26 5.21 0.74 0.36 49 0.36 2-months 50 -2.57 13.28 1.88 -1.37 49 0.09
Table 12 shows that the 2-days period shows a mean increase of 0.26 percent. There was no significant change in mean share price for the total 2-day group (M=0.26, SD=5.21); t (df=49) = 0.36, p = 0.36. Therefore this increase is not significantly different from zero.
The 2-month period shows a mean decrease of the share price of 2.57 percent. There was no significant change in mean share price for the total 2-day group (M=-2.57, SD=13.28); t (df=49) = -1.37, p = 0.09. Therefore this decrease is not significantly different from zero either.
So the fluctuations of the share price around the announcement of the acquisition are
5.2.5 Total sample
TABLE 13
Analysis of total sample (n=200) Period Number of observations Mean change in share price Standard Deviation Standard Error Mean t-value df Significance (1-tailed) 2-days 200 0.54 5.56 0.39 1.37 199 0.09 2-months 198 2.32 14.79 1.05 2.22 197 0.01*
*t-value is significant at alpha = 0,05
Table 13 shows the results of the t-test for the total sample. For the 2-days period the mean increase of the share price is 0.54 percent, which is slightly higher than the test value of zero. There was no significant change in mean share price for the total 2-days group (M=0.54, SD=5.56); t (df=199) = 1.37, p = 0.09.
The 2-months period has a mean increase of the share price of 2.32 percent, which is higher than the test value of zero. There was a significant change in mean share price for the total 2-months group (M=2.32, SD=14.79); t (df=197) = 2.22, p = 0.01.
Thus, the increase of the share price around the announcement of the acquisition is insignificant for the 2-days period and significant for the 2-months period.
5.2.6 Summary of hypothesis tests
The table below shows an overview of the results of the hypothesis tests. None of the
proposed hypotheses were supported. Nevertheless there was significant evidence to conclude there were some changes in share price, but the observed changes were in the opposite
TABLE 14
Results of hypothesis test results Hypothesis Management style of the acquiring company Management style of the target company Expected change in shareholder value Observed change in shareholder value Hypothesis 1 Agency theory
based
management style
Agency theory based
management style
Negative change Positive change* Hypothesis2 Stewardship theory based management style Stewardship theory based management style
Positive change No change
Hypothesis3 Agency theory based
management style
Stewardship theory based management style
Negative change Positive change Hypothesis4 Stewardship theory based management style Agency theory based management style
Positive change No change
* Only significant for 2-months period
5.3 Ad Hoc Analysis
When a company wants to engage in cross-border acquisitions, which target should it choose? One of the factors that it might consider is the management style of the target. Table 14 (see paragraph 5.2.6) shows that the observed changes in shareholder value are positive for companies with an ATBMS and that there is no change in shareholder value for companies with a STBMS. The question is whether it is more attractive to acquire a company with an equal management style or a company with a different management style. Figures 1 and 2 (see paragraph 5.1.6) show that there are differences in the mean change in shareholder value. For a company with an ATBMS the 2-days period shows that there is a decrease in share price if the target has an ATBMS as well and an increase in share price when the target has a
Independent sample T-tests have been done to analyze this, because there is one dependent ratio variable (shareholder value) which is normally distributed and one independent
categorical variable with two groups. This is a two-tailed test since the direction is not known beforehand. The significance level is five percent in order to minimize the chances of a type I and type II error. The test variable is the change in share price for both time periods and the grouping variable is the group of acquisition. The Levene’s test for equality of variance shows that equal variance can be assumed in all cases.
The null-hypotheses for these tests are that there is no difference between the groups; so the management style of the target does not matter.
H5: The change in share price differs when a company with an Agency Theory Based Management Style acquires company with similar or different management style. H5,1: (CompanyATBMS CompanyATBMS) ≠ (CompanyATBMS CompanySTBMS)
H5,0: (CompanyATBMS CompanyATBMS) = (CompanyATBMS CompanySTBMS)
H6: The change in share price differs when a company with a Stewardship Theory Based Management Style acquires company with similar or different management style.
H6,1: (CompanySTBMS CompanySTBMS) ≠ (CompanySTBMS CompanyATBMS)
H6,0: (CompanySTBMS CompanySTBMS) = (CompanySTBMS CompanyATBMS)
5.3.1 Acquirer has an Agency Theory Based Management Style TABLE 15
2-days period - Acquirer has an Agency Theory Based Management Style Target company Number of observations Mean change in share price Standard Deviation Standard Error Mean t-value df Significance (2-tailed) CompanyATBMS 50 -0.22 5.36 0.76 -2.05 98 0.04* CompanySTBMS 50 2.29 6.82 0.97
