Does Hedge Fund Short-Termism Shape Up Merger Payment?Citation formats

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Does Hedge Fund Short-Termism Shape Up Merger Payment? / Gao, Ning; Kolokolova, Olga; Mattes, Achim.

2019.

Research output: Working paper

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@techreport{cfcfc3576c4843838e1f58c9de0e4830,
title = "Does Hedge Fund Short-Termism Shape Up Merger Payment?",
abstract = "Using a sample of mergers and acquisitions (M&As) from 1995 to 2009, we find that the proportion of cash payment increases with hedge fund holdings in the target firms measured before the deal announcement. This effect is more pronounced when the holdings are concentrated in a smaller number of funds.  Targets with higher hedge fund holdings are more likely to accept payment in bidders' overvalued equity, especially if the  holdings by high-turnover hedge funds is high. When a bidder offers more cash than expected in the presence of hedge funds holding the target, deal completion probability increases, duration shortens, but neither premium nor target announcement returns are affected. Our results suggest that hedge fund short-termism leads to inefficient merger payments for long-term target shareholders.",
keywords = "G23, G34, Hedge Funds, Holdings, Means of Payment, Mergers and Acquisitions, Short-Termism",
author = "Ning Gao and Olga Kolokolova and Achim Mattes",
year = "2019",
doi = "10.2139/ssrn.3113216",
language = "English",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - Does Hedge Fund Short-Termism Shape Up Merger Payment?

AU - Gao, Ning

AU - Kolokolova, Olga

AU - Mattes, Achim

PY - 2019

Y1 - 2019

N2 - Using a sample of mergers and acquisitions (M&As) from 1995 to 2009, we find that the proportion of cash payment increases with hedge fund holdings in the target firms measured before the deal announcement. This effect is more pronounced when the holdings are concentrated in a smaller number of funds.  Targets with higher hedge fund holdings are more likely to accept payment in bidders' overvalued equity, especially if the  holdings by high-turnover hedge funds is high. When a bidder offers more cash than expected in the presence of hedge funds holding the target, deal completion probability increases, duration shortens, but neither premium nor target announcement returns are affected. Our results suggest that hedge fund short-termism leads to inefficient merger payments for long-term target shareholders.

AB - Using a sample of mergers and acquisitions (M&As) from 1995 to 2009, we find that the proportion of cash payment increases with hedge fund holdings in the target firms measured before the deal announcement. This effect is more pronounced when the holdings are concentrated in a smaller number of funds.  Targets with higher hedge fund holdings are more likely to accept payment in bidders' overvalued equity, especially if the  holdings by high-turnover hedge funds is high. When a bidder offers more cash than expected in the presence of hedge funds holding the target, deal completion probability increases, duration shortens, but neither premium nor target announcement returns are affected. Our results suggest that hedge fund short-termism leads to inefficient merger payments for long-term target shareholders.

KW - G23

KW - G34

KW - Hedge Funds

KW - Holdings

KW - Means of Payment

KW - Mergers and Acquisitions

KW - Short-Termism

U2 - 10.2139/ssrn.3113216

DO - 10.2139/ssrn.3113216

M3 - Working paper

BT - Does Hedge Fund Short-Termism Shape Up Merger Payment?

ER -