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Mergers & Acquisitions II

Paper Session

Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM

Loews Philadelphia, Commonwealth Hall C
Hosted By: American Finance Association
  • Chair: Margarita Tsoutsoura, Cornell University

Mergers and Acquisitions, Technological Change and Inequality

Wenting Ma
,
University of North Carolina
Paige Ouimet
,
University of North Carolina
Elena Simintzi
,
University of British Columbia

Abstract

This paper documents important shifts in the occupational composition of industries following high merger and acquisition (M&A) activity as well as accompanying increases in mean wages and wage inequality. We propose mergers and acquisitions act as a catalyst for skill-biased and routine-biased technological change. We argue that due to an increase in scale, improved efficiency or lower financial constraints, M&As facilitate technology adoption and automation, disproportionately increasing the productivity of high-skill workers and enabling the displacement of occupations involved in routine-tasks, typically mid-income occupations. An increase in M&A intensity of 1% is associated with a 2.8% (2.9%) reduction in industry (industry-local labor market) routine share intensity and an one (six) percentage point increase in the share of high skill workers. These results have important implications on wage inequality: An increase in M&A activity is associated with higher hourly wages and an increase in wage polarization in an industry (industry-local labor market). Our results are robust to several robustness tests which further support the notion that firm reorganizations through M&As are a first-order driving force of job polarization and inequality.

Advertising, Attention, and Acquisition Returns

Eliezer Fich
,
Drexel University
Laura Starks
,
University of Texas-Austin
Anh Tran
,
City University London

Abstract

We show that targets with pre-takeover advertising obtain higher premiums while their acquirers
experience lower merger announcement returns. These economically significant effects are
consistent with the hypothesis that advertising allows target management to increase the firm’s
profile and negotiating power. The effect is stronger where expected: for targets in business-toconsumer
industries, with short-sale constraints, and with higher managerial ownership. Further,
advertising targets are more likely to initiate their own sale, be pursued by multiple bidders,
receive revised increased bids, capture more of the merger surplus and in the event of a failed
acquisition, experience a permanent revaluation of about 1%.

A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers

Vineet Bhagwat
,
University of Oregon
Jonathan Brogaard
,
University of Washington
Brandon Julio
,
University of Oregon

Abstract

We examine whether Bilateral Investment Treaties (BITs) remove impediments to foreign investment by helping enforce contracts and protecting the property rights of foreign investors. We find that BITs have a large, positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. Most of this increase is driven by capital flowing from developed economies to developing economies, shedding light on the long-standing Lucas Paradox as to why most cross-border capital still flows to developed countries. Additionally, most of our results are driven by target countries with “medium” levels of political risk, consistent with popular views that BITs are ineffective for countries with very high risk and not necessary for countries with low political risk.
Discussant(s)
Andrew Ellul
,
Indiana University, CEPR, CSEF, and ECGI
Kenneth Ahern
,
University of Southern California
Isil Erel
,
Ohio State University
JEL Classifications
  • G3 - Corporate Finance and Governance