{"title":"The Role of Skewness in Mergers and Acquisitions","authors":"R. J. Delisle, N. Walcott","doi":"10.1142/S2010139217400018","DOIUrl":null,"url":null,"abstract":"Investors prefer stocks with idiosyncratic skewness in their returns, which may be evidence of behavioral biases. Previous research suggests that skewness is related to the choice of target in corporate acquisitions, which may reflect CEOs’ behavioral biases. However, if the acquiring firms’ stock returns are also skewed, then the acquirer CEOs may rationally use their stock as currency in these deals. We investigate the skewness of the acquiring firm and the method of payment to determine if takeovers involving high skewness stocks are consistent with shareholder wealth maximization. We find that firms with high levels of skewness are more likely to become takeover targets and that takeover premiums increase with skewness, but there is no relation between the target’s skewness level and acquirer announcement returns. We also find that acquirers with high skewness are more likely to pay with stock and have higher announcement returns. We conclude that acquirer CEOs often take advantage of investor preference for skewness when undertaking mergers and acquisitions activity.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":null,"pages":null},"PeriodicalIF":0.9000,"publicationDate":"2017-02-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"3","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Quarterly Journal of Finance","FirstCategoryId":"91","ListUrlMain":"https://doi.org/10.1142/S2010139217400018","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 3
Abstract
Investors prefer stocks with idiosyncratic skewness in their returns, which may be evidence of behavioral biases. Previous research suggests that skewness is related to the choice of target in corporate acquisitions, which may reflect CEOs’ behavioral biases. However, if the acquiring firms’ stock returns are also skewed, then the acquirer CEOs may rationally use their stock as currency in these deals. We investigate the skewness of the acquiring firm and the method of payment to determine if takeovers involving high skewness stocks are consistent with shareholder wealth maximization. We find that firms with high levels of skewness are more likely to become takeover targets and that takeover premiums increase with skewness, but there is no relation between the target’s skewness level and acquirer announcement returns. We also find that acquirers with high skewness are more likely to pay with stock and have higher announcement returns. We conclude that acquirer CEOs often take advantage of investor preference for skewness when undertaking mergers and acquisitions activity.
期刊介绍:
The Quarterly Journal of Finance publishes high-quality papers in all areas of finance, including corporate finance, asset pricing, financial econometrics, international finance, macro-finance, behavioral finance, banking and financial intermediation, capital markets, risk management and insurance, derivatives, quantitative finance, corporate governance and compensation, investments and entrepreneurial finance.