Lalatendu Misra

Acquisitions of solvent thrifts: Wealth effects and managerial motivations

Abstract We examine voluntary acquisitions of solvent stock-held thrift institutions since 1979, and find that bidding firms suffered losses, target firms gained, and the impact of the merger on the bidder-target pair was positive on average. During the post-FIR-REA period acquirers experienced smaller losses and targets experienced smaller gains relative to the pre-FIRREA period. An investigation into the motives of bidding firm management provides evidence indicating the presence of synergy, agency, and hubris motivations in the pre-FIRREA period. Although the acquisitions environment underwent substantial changes in the post-FIRREA period, we find no evidence of corresponding changes in acquisition motivations.

Failure and Failure Resolution in the US Thrift and Banking Industries

The problems that plagued the thrift industry during the 1980s were primarily due to greater macroeconomic uncertainty and to inconsistent public policies. The slow regulatory response to the industrys problems was largely the result of the regulators unwillingness to face up to the seriousness of these problems until it was too late to avoid hundreds of billions of dollars of losses.

International Price Discovery for Emerging Market Stocks: Evidence from Indian GDRs

Given the rapid increase of the number of emerging market stocks being dually listed abroad, it is important to understand the role of the foreign markets in the price discovery process. We examine this issue by studying the role of the London Global Depositary Receipts (GDR) market for Indian stocks. We find that the London and the Mumbai prices are cointegrated despite arbitrage restrictions imposed by Indian government regulations. Each market contributes almost equally to price discovery, a result in contrast to the small contribution of offshore markets to price discovery of stocks based in developed economies. The GDR markets contribution to price discovery increases with the foreign ownership of the firm and GDR issue size. We also find evidence of significant volatility spillovers from the London market to the Indian market. The overall results suggest that offshore trading in emerging market stocks play a beneficial role by aiding domestic price discovery.

Deal Size, Bid Premium, and Gains in Bank Mergers: The Impact of Managerial Motivations

Do mergers with greater target relative to acquirer size create more value than mergers with smaller relative sized targets? Do larger bid amounts represent wealth transfers from acquirers or do they signal greater expected merger gains? We hypothesize that the relations among aggregate merger gains, relative size, and bid premiums are asymmetric across mergers made by value-enhancing versus value-reducing managers. We use a large sample of bank mergers to test these predictions and find that the value response to different explanatory variables is asymmetric. Our findings provide new insights into how the market values merger bids.

Public information and pre-announcement trading in takeover stocks

Abstract This paper examines the impact of published news regarding potential takeovers on the pre-announcement price behavior of takeover targets. For takeovers occurring in 1985 and 1986 it is found that price run-ups are significantly greater for firms which are in the news as potential takeover targets relative to those firms not so featured. For firms which are not in the news as potential targets, price run-up is absent up to one day before the actual announcement. While public information explains a significant part of the pre-announcement price run-ups for firms in the news, there is also evidence of substantial pre-news price run-ups.

FSLIC assistance and the wealth effects of savings and loan acquisitions

Abstract This paper examines whether FSLIC-assisted failed thrift mergers in the 1980s resulted in wealth transfers from the insurance fund to acquiring firm stockholders. We find that winning bidders earned positive abnormal returns upon the announcement of such mergers. More importantly, the abnormal returns are larger in cases where the FSLIC provided direct financial assistance, and bidder abnormal returns are positively related to the size of FSLIC assistance. These results suggest that the process followed by the FSLIC in arranging failed thrift mergers did result in wealth transfers.

Return Linkages Between Dual Listings Under Arbitrage Restrictions: A Study of Indian Stocks and Their London Global Depositary Receipts

We examine the linkages between returns on Indian global depositary receipts (GDRs) in London and their underlying stocks in India. GDR returns are sensitive to returns observed earlier in India. This sensitivity is more pronounced for more liquid GDRs. Although arbitrage is not feasible for GDRs that sell at a premium, these GDRs are, nevertheless, sensitive to Indian returns. The sensitivity is greater for GDRs selling at a discount, where costly arbitrage is feasible. GDR returns have a significant but small effect on subsequent returns of the underlying stocks, with more liquid GDRs having a slightly greater impact. Copyright 2003 by the Eastern Finance Association.

Taxpayer subsidies in failed thrift resolution: The impact of FIRREA

Abstract We compare the wealth effects of acquisitions of failed thrifts before and after the passage of FIRREA in August 1989. In contrast to FSLIC assisted deals in the pre-FIRREA period, we find no evidence of significant acquirer gains in RTC assisted transactions. In addition, there is no significant correlation between acquirer gains and either the number of bidders or the amount of assistance provided by the RTC. These results suggest the absence of any symmetric tax-payer overpayments in RTC assisted transactions, and indicate that regulatory and institutional changes instituted by FIRREA resulted in an improvement in the resolution process for failed thrifts.

An Examination of Gains to Acquirers of Mutual Thrifts in Merger Conversions

This paper examines the wealth impact of acquiring mutual thrifts in merger conversions. We find that these transactions produced wealth gains both before and after the passage of FIRREA. These gains, however, are statistically significant only in the post-FIRREA period, indicating that regulatory changes resulting from FIRREA made such mergers more appealing. Cross-sectional analyses indicate that merger conversions enhance value by providing an opportunity to expand into potentially lucrative markets. Acquisitions of mutuals that present substantial opportunities for branch closings lead to larger gains. In addition, acquirer gains increase with the relative size of the transaction and are larger for acquisitions in markets served by competing firms that are small relative to the merged entity. Contrary to popular belief, variations in bidder gains appear to be unrelated to changes in the regulatory capital position resulting from the merger conversion.

Regulatory learning in failed thrift auctions

Abstract We use a sample of failed thrift auctions to examine if regulators learn from early transactions and improve their performance in later transactions. Our findings suggest that experience at failure resolution does not by itself lead to improved regulatory performance. Evidence of regulatory learning is restricted to dealings with repeat acquirers; in cases where an acquiring firm makes abnormal gains, regulators are able to restructure the auction process and eliminate such gains in subsequent acquisitions made by the same acquirers.