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Bidder and target size effects in M&A are not driven by overconfidence or agency problems
Schneider, Christoph
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Spalt, Oliver
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Document Type:
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Article
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Year of publication:
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2021
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The title of a journal, publication series:
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Critical Finance Review
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Volume:
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tba
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Issue number:
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tba
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Page range:
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tba
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Place of publication:
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Hanover, Mass.
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Publishing house:
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Now Publishers
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ISSN:
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2164-5744 , 2164-5760
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Publication language:
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English
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Institution:
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Business School > ABWL, Finanzwirtschaft u. Finanzmarktinstitutionen (Spalt 2019-)
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Subject:
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330 Economics
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Classification:
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JEL:
G34,
G14,
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Keywords (English):
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mergers and acquisitions, size effects, scaling, proxy variables
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Abstract:
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The impact of size variables on bidder announcement returns can be decomposed into two effects, the "size as proxy effect" which was the focus of the prior M&A literature, and a "scaling effect" which magnifies per-dollar value created in a given deal. Using data of US takeovers from 1981 to 2014, we document that small bidders make better acquisitions than large bidders when they acquire non-public firms, but worse acquisitions when they acquire public firms, which is inconsistent with size as proxy explanations (e.g., size proxying for overconfidence of a firm's managers or agency problems). The pattern is consistent with scaling, because value created for bidders is on average negative for public target deals, but positive for non-public target deals. Scaling creates additional predictions for target size, relative size, and international M&A deals we show are borne out by the data.
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