Jean-Gabriel Cousin

M&A Outcomes and Willingness to Sell

Should target shareholders divulgate their willingness to sell (WTS)? In this article, we tackle this issue by investigating the net WTS wealth effect. We first model the trade-off between the probability of a sale and the price paid in case of a sale, and derive testable predictions. We then provide an empirical test using a proxy of the target’s WTS based on deal initiation and the chosen selling procedure, which are hand-collected in Securities and Exchange Commission filings. The results reveal a negative relationship between the target’s displayed WTS and its expected profits, mitigated by competition among acquirers.

Assessing the Power and Size of the Event Study Method Through the Decades

The idiosyncratic risk is a key input of the standard event study method. The recent literature has suggested that the idiosyncratic risk is not stable through time, and it has increased significantly in the nineties. This paper investigates to what extent the event study method is affected by this economic phenomenon. Using both simulation and real dataset analyses, we show that the classical event study methods suffer from a significant loss of power due to increasing idiosyncratic risk, as the intuition suggests it. A (and maybe the only) solution to alleviate the impact of increasing idiosyncratic risk consists in increasing the sample size by a factor corresponding to the ratio of average idiosyncratic variances between the analyzed periods.

Full-Stock-Payment Marginalization in Merger and Acquisition Transactions

The number of merger and acquisition (M&A) transactions paid fully in stock in the U.S. market declined sharply after 2001, when pooling and goodwill amortization were abolished by the Financial Accounting Standards Board. Did this accounting rule change really have such far reaching implications? Using a difference-in-differences test and Canada as a counterfactual, this study reveals that it did. We also report several other results confirming the role of pooling abolishment, including (i) that the decrease in full stock payment relates to CEO incentives and (ii) that previously documented determinants of the M&A mode of payment cannot explain the post-pooling abolishment pattern. These results are also robust to controls for various factors, such as the Internet bubble, the exclusion of cross-border deals, the presence of Canadian cross-listed firms, the use of a constant sample of acquirers across the pooling and post-pooling abolishment periods, the use of Europe as an alternative counterfactual, and...

Does Social Responsibility Deter Shares from Higher Returns? An European Empirical Study

The academic Interest in the performance of so-called Social Responsible firms has grown steadily these last years. But empirical evidences remain scarce. By studying a portfolio of firms included in the ASPI Euro zone Index, our work contributes to fill this hole. We examine the performance and risk sensitivities and try to overcome the methodological deficiencies of the some prior studies. In particular, we adopt Carharts (1997) multifactor attribution approach and Ferson-Schadt (1996) conditional model. After controlling for market risk and others factors, we find evidences supporting the conjecture that the performance differential between firms classified as Socially Responsible and the others is insignificant.

Empirical Evidence of Overbidding in M&A Contests

Surprisingly few papers have attempted to develop a direct empirical test for overbidding in M&A contests. We develop such a test grounded on a necessary condition for profit maximizing bidding behavior. The test is not subject to endogeneity concerns. Our results strongly support the existence of overbidding. We provide evidence that overbidding is related to conflicts of interest, but also some indirect evidence that it arises from failing to fully account for the winner’s curse.The Hubris Hypothesis is grounded on a failure to adequately account for the winner’s curse, which leads to overbidding. Surprisingly few papers have attempted to develop a direct empirical test of the presence of overbidding in M&A contests. We develop two such tests in this paper. Our results strongly support the existence of overbidding.

Equity Carve-Outs: A Sign of Low Opportunity Industry?

Corporate divestments on the stock markets have been studied since long, but the main focus of previous studies has been the firm level impact of divestments. We take this discussion to the industry level and argue that divestments, on average, are carried out in industries, where opportunities are low. These industries have low operating performance, gauged on capital expenditures, cash flow, sales growth, assets growth, profit margin, market to book value and research and development, compared to industries where there are no divestments. In addition to this evidence, we find that the merger and acquisitions activities, in which the target is in industries where divestments happened in last three years, bidders had less value created compared to mergers where the target industry had no divestments. Both, the low operating performance of industries post divestments and low value created by bidders having targets in industries where divestments happened, signal that industries where divestments take place have low opportunities ahead. This also implies that a corporate change can be interpreted as a signal for industrial change.

Industry IPOs, Growth Opportunities, and Private Target Acquisitions

As a result of increased information production and aggregation, acquiring companies may make merger decisions based on valuable information they extract from public markets. This paper examines acquisition decisions, and suggests a novel source of information for industry firms – the IPO market. The results provide evidence that industry IPOs signal the existence of available investment opportunities, in particular about privately-held firms. The proportion of private target acquisitions, stock payments, and acquirer announcement returns significantly correlates with signals derived from industry IPOs. Our results suggest that industry IPOs generate positive externalities by facilitating more efficient acquisition decisions.

The Full Stock Payment Marginalization in M&A Transactions

The analysis of US M&A transactions through the last decades reveals a striking and sharp declining in the percentage of transactions fully paid in stock since 2001, the year of pooling and goodwill amortization abolishment (SFAS 141 and 142). Can accounting rule changes have had such far reaching implications? Our results clearly support this hypothesis: (i) our differences-in-differences tests reveal a statistically and economically significant drop in the number of transactions fully paid in stock in the US after 2001 using Canada as counterfactual, (ii) the decrease in the probability to pay fully in stock is related to CEO incentives, (iii) classic determinants of the M&A mode of payment are unable to explain the post pooling abolishment evolution, (iv) acquisitions more likely to be accounted under pooling are less frequently fully paid in stock after pooling abolishment and (v) acquisitions of public targets fully paid in stock have been significantly more negatively perceived by investors after pooling abolishment. Our results are moreover robust to controlling for the internet bubble burst, the exclusion of cross-border deals, the presence of Canadian cross-listed firms, the use of a constant sample of acquirers across the pooling and post pooling abolishment periods, the use of Europe in place of Canada as counterfactual and an alternative treatment effect test.

Firm Uncertainty and Financial Analysts’ Activity

Using implied volatility surfaces provided by the Optionmetrics database for the period 2003-2007, this study documents the strong, positive relation between investor perceptions of firm uncertainty and financial analysts’ activity. Granger causality tests reveal that an increase in perceived uncertainty leads to a subsequent increase in financial analysts’ activity, but this increase in activity does not seem to lead to lower firm uncertainty perceptions. The results from a sample of merger and acquisition transactions completed by S&P500 firms confirm a positive relation between firm uncertainty perceptions and financial analysts’ subsequent activity.