The M&A Short-Term Wealth Effect of A Consistent Dividend-Paying Firm

Veeghan Frances Tirtasaputra, Veren Geby Salim, John Iwan Kusno, Adrian Teja

Abstract


Abstract

The paper examines the M&A short-term wealth effect of a consistent dividend-paying firm. The consistent dividend-paying firm is unique because they are associated with lower agency problems. Hence, it is expected that the M&A by the dividend-paying firm has a short-term positive wealth effect. To test the hypothesis, we perform two steps analysis. The event-study method examines the acquirer stock performance on the announcement date, the deal close date, and the announcement to deal close date. The cross-section regression to test the short-term wealth effect of M&A by the dividend-paying firm. The dependent variable is the acquirer's stock performance from the event-study method. The independent variable is a dividend-paying firm. The control variables are the acquisition deal value relative to the acquirer's stock market capitalization, the acquirer's stock dividend yield, and the acquirer's price-to-book value (PBV) ratio. The samples are M&A transactions in ASEAN-5 (Indonesia, Malaysia, The Philippines, Thailand, and Vietnam) for 2015-2019. The regression analysis shows that the variable representing a dividend- paying firm has a negative sign. The finding suggests that investors react negatively to the M&A by the dividend-paying firm. The negative wealth effect is relatively small compared to the M&A deal value and the acquirer's stock valuation. The result is that the M&A by a dividend-paying firm provides a short-term positive wealth effect.


JEL: G34, G35


Keywords


ARDL model; asymmetric effect; bank lending; bank performance; bank soundness

Full Text:

PDF

References


Alexandridis, G., Petmezas, D., & Travlos, N. G. (2010). Gains from Mergers and Acquisitions Around the World: New Evidence. Financial Management, 39(4), 1671– 1695. https://doi.org/10.1111/j.1755-053X.2010.01126.x

Berzins, J., Bøhren, Ø., & Stacescu, B. (2019). Dividends and taxes: The moderating role of agency conflicts. Journal of Corporate Finance, 58(July), 583–604. https://doi.org/10.1016/j.jcorpfin.2019.07.003

Bhattacharya, D., Chang, C. W., & Li, W. H. (2020). Stages of firm life cycle, transition, and dividend policy . Finance Research Letters, 33(May 2019). https://doi.org/10.1016/j.frl.2019.06.024

Binder, J. J. (1998). The Event Study Methodology Since 1969. Review of Quantitative Finance and Accounting, February. https://doi.org/10.1023/A

Chen, F., Ramaya, K., & Wu, W. (2020). The wealth effects of merger and acquisition announcements on bondholders : New evidence from the over-the-counter market ☆. Journal of Economics and Business, 107(August 2019). https://doi.org/10.1016/j.jeconbus.2019.105862

Chen, H. L., Shiu, C. Y., & Wei, H. S. (2019). Price effect and investor awareness: Evidence from MSCI Standard Index reconstitutions. Journal of Empirical Finance, 50(December 2017), 93–112. https://doi.org/10.1016/j.jempfin.2019.01.002

Chua, A. (2014). Market conditions, underwriter reputation and first day return of IPOs. Journal of Financial Markets, 19(1), 131–153. https://doi.org/10.1016/j.finmar.2013.11.001

DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2004). Dividend Policy, Agency Costs, and Earned Equity. NBER Working Paper, 10599.

Degbey, W. Y., & Pelto, E. (2021). Customer knowledge sharing in cross-border mergers and acquisitions: The role of customer motivation and promise management. Journal of International Management, 27(4). https://doi.org/10.1016/j.intman.2021.100858

Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. Accounting Review, 86(6), 1969–1994. https://doi.org/10.2308/accr-10130

Dickinson, V., Kassa, H., & Schaberl, P. D. (2018). What information matters to investors at different stages of a firm's life cycle? Advances in Accounting, 42(August), 22–33. https://doi.org/10.1016/j.adiac.2018.07.002

Faff, R., Prasadh, S., & Shams, S. (2019). Merger and acquisition research in the Asia-Pacific region: A review of the evidence and future directions. Research in International Business and Finance, 50(May 2018), 267–278. https://doi.org/10.1016/j.ribaf.2019.06.002

Fairchild, R. (2010). Dividend policy, signalling and free cash flow: an integrated approach. Managerial Finance, 36(5), 394–413. https://doi.org/10.1108/03074351011039427

Fuller, K., Netter, J., & Stegemoller, M. (2002). What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. Journal of Finance, 57(4), 1763–1793. https://doi.org/10.1111/1540-6261.00477

Gantchev, N., Sevilir, M., & Shivdasani, A. (2020). Activism and empire building. Journal of Financial Economics, 138(2), 526–548. https://doi.org/10.1016/j.jfineco.2020.06.001

Glambosky, M., Rakesh, S., & Ngoc, T. (2020). The wealth effects of mergers and acquisitions by dividend payers. The Quarterly Review of Economics and Finance, 78, 154–165.

Grullon, G., & Michaely, R. (2002). Dividends , Share Repurchases , and the Substitution Hypothesis. Journal of Finance, 57(4), 1649–1684.

Hannan, T. H., & Pilloff, S. J. (2004). Will the Proposed Application of Basel II in the United States Encourage Increased Bank Merger Activity? Evidence from Past Merger Activity.

Hope, A. O., & Thomas, W. B. (2008). Managerial Empire Building and Firm Disclosure and Firm Disclosure. Journal of Accounting Research, 46(3), 591–626.

Hossain, M. S. (2021). Merger & Acquisitions ( M & As ) as an important strategic vehicle in business : Thematic areas , research avenues & possible suggestions ☆. 116(February).

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency cost, and capital structure. Journal of Financial Economics, 3(4), 305–360.

Kiesel, F., Kolaric, S., & Schiereck, D. (2016). Market integration and efficiency of CDS and equity markets. Quarterly Review of Economics and Finance, 61, 209–229. https://doi.org/10.1016/j.qref.2016.02.010

Lee, D. (2017). Cross-border mergers and acquisitions with heterogeneous firms: Technology vs. market motives. North American Journal of Economics and Finance, 42,

–37. https://doi.org/10.1016/j.najef.2017.06.003

Ma, Q., Whidbee, D. A., & Zhang, W. (2019). Acquirer reference prices and acquisition performance. Journal of Financial Economics, 132(1), 175–199. https://doi.org/10.1016/j.jfineco.2018.10.004

Maksimovic, V., Phillips, G., & Prabhala, N. R. (2011). Post-merger restructuring and the boundaries of the firm $. Journal of Financial Economics, 102(2), 317–343. https://doi.org/10.1016/j.jfineco.2011.05.013

Norli, O., Ostergaard, C., & Schindele, I. (2015). Liquidity and shareholder activism. Review of Financial Studies, 28(2), 486–520. https://doi.org/10.1093/rfs/hhu070

Rao, U., & Mishra, T. (2020). Posterior analysis of mergers and acquisitions in the international financial market : A re-appraisal. Research in International Business and Finance 51(July 2019), 1–15. https://doi.org/10.1016/j.ribaf.2019.101062

Renneboog, L., & Vansteenkiste, C. (2019). Failure and success in mergers and acquisitions. Journal of Corporate Finance, 58(July), 650–699. https://doi.org/10.1016/j.jcorpfin.2019.07.010

Sahu, S. K., & Agarwal, N. (2017). Inter-firm differences in mergers and acquisitions: a study of the pharmaceutical sector in India. Journal of Economic Studies, 44(5), 861–878. https://doi.org/10.1108/JES-12-2015-0239

Sun, L., & Yu, H. (2022). The effects of busy board on firm's probability to pay dividends. Research in International Business and Finance, 60(April 2021), 101596. https://doi.org/10.1016/j.ribaf.2021.101596

Teti, E., & Tului, S. (2020). Do mergers and acquisitions create shareholder value in the infrastructure and utility sectors ? Analysis of market perceptions. Utilities Policy, 64(April), 101053. https://doi.org/10.1016/j.jup.2020.101053

Ting, I. W. K., Tebourbi, I., Lu, W. M., & Kweh, Q. L. (2021). The effects of managerial ability on firm performance and the mediating role of capital structure: evidence from Taiwan. Financial Innovation, 7(1). https://doi.org/10.1186/s40854-021-00320-7

Turki, A., & Dereeper, S. (2012). The Information Content of Acquirer Dividend Policy in Acquisitions of Publicly Traded Firms. Working.

Wei, Y., Qiao, L., & Lv, X. (2020). The impact of mergers and acquisitions on technology learning in the petroleum industry . Energy Economics, 88, 104745. https://doi.org/10.1016/j.eneco.2020.104745

Xu, J., & Huang, H. (2021). Pay more or pay less? The impact of controlling shareholders' share pledging on firms' dividend payouts. Pacific Basin Finance Journal, 65(December 2019). https://doi.org/10.1016/j.pacfin.2020.101493




DOI: https://doi.org/10.26905/jkdp.v26i2.6572

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534
Email: jkp@unmer.ac.id

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0