Mike Stegemoller

What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions

We study shareholder returns for firms that acquired five or more public, private, and/or subsidiary targets within a short time period. Since the same bidder chooses different types of targets and methods of payment, any variation in returns must be due to the characteristics of the target and the bid. Results indicate bidder shareholders gain when buying a private firm or subsidiary but lose when purchasing a public firm. Further, the return is greater the larger the target and if the bidder offers stock. These results are consistent with a liquidity discount, and tax and control effects in this market.

Implications of Data Screens on Merger and Acquisition Analysis: A Large Sample Study of Mergers and Acquisitions from 1992 to 2009

We analyze a comprehensive set of mergers and acquisitions from SDC data from 1992 through 2009. We do not impose common restrictions such as excluding private bidders, small targets, or deals without a deal value. We show a broader scope of mergers and acquisitions activity than that implied in the literature, which generally oversamples larger deals involving public firms. Further, some of our results differ from the extant literature. For example, the finding that mergers occur in waves is attenuated with a greater presence of smaller and/or non-public firms. Also, acquirers gain in most takeovers despite a threefold decline over the sample period in acquirer returns. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Moving from Private to Public Ownership: Selling out to Public Firms versus Initial Public Offerings

We study the movement of assets from private to public ownership through two alternative means: the acquisition of private companies by firms that are public (sellouts) or by initial public share offerings (IPOs). We consider firm-specific characteristics for 1,074 IPOs and 735 sellouts from 1995 through 2004 to identify differences in growth, capital constraints, and asymmetric information between the two types of transactions. Our results suggest that firms move to public ownership through an IPO when they have greater growth opportunities, and face more capital constraints. Previous analyses of U.S. companies have focused on broad aggregate and industrylevel trends while our work allows a better understanding of the firm-specific characteristics leading to firms choosing to go public through an IPO and the costs of accessing the public capital markets. Takeovers of private firms by publicly traded firms (sellouts) and initial public offerings (IPOs) are two methods through which privately owned assets move to public ownership. These transactions are comparable since they represent significant shifts in ownership structure, a channel for raising capital, and a means of liquidation for owners. However, there are important differences between the transactions. Most fundamentally, in an IPO the firm continues to exist as a separate entity (although now owned by public shareholders) and in a sellout the control of the assets moves to another public firm. In addition, the structures of the transactions that move the assets to public ownership are different – sellouts need not access the costly IPO process. In this research, we consider the factors that determine the mechanism through which a firm moves to public status after the firm has decided to access the public equity market. Most closely related to our study, Brau, Francis and Kohers (2003) report that IPOs are more likely under macroeconomic conditions such as a relatively high cost of debt and a “hotter” IPO market and industry characteristics such as in industries that are more highly concentrated and more high-tech, while sellouts are more likely in higher market-to-book industries and highly leveraged industries. In our analysis, we extend Brau, Francis, and Kohers by analyzing firm-specific factors that might be important in the decision of how to access public equity markets. More recently, Bayar and Chemmanur (2006) theoretically model the choice of exit strategy by entrepreneurs and venture capitalists and find the probability of success in the product market as a stand-alone firm and the amount of information asymmetry between the insiders and IPO market investors or potential acquirers to be key drivers in the exit decision. They also suggest that synergies with the acquirer, the relative bargaining power of the private firm and the potential acquirer, and the presence of venture capitalists will affect the decision. Our work extends this research empirically by considering firm-specific factors (i.e., growth opportunities, financial constraints, and asymmetric information in firm valuation) that are associated with the method chosen to move assets from private to public status. Overall, our results illustrate the importance of firm-specific growth opportunities and market valuation in

Investment Banking Relationships and Analyst Affiliation Bias: The Impact of the Global Settlement on Sanctioned and Non-Sanctioned Banks

We examine the impact of the Global Settlement on affiliation bias in analyst recommendations. Using a broad measure of investment bank-firm relationships, we find a substantial reduction in analyst affiliation bias following the settlement for sanctioned banks. In contrast, we find strong evidence of bias both before and after the settlement for affiliated analysts at non-sanctioned banks. Our results suggest that the settlement led to an increase in the expected costs of issuing biased coverage at sanctioned banks, while concurrent self-regulatory organization rule changes were largely ineffective at reducing the influence of investment banking on analyst research at large non-sanctioned banks.

The Changing Nature of Investment Banking Relationships

We examine relationships between firms and their investment banks (IBs), both within and across different IB functions. For all transaction types, we find an increase in the number of relationships and a decrease in relationship exclusivity over time. We identify significant transaction-type specific relationship components, with relationships being strongest for equity and weakest for M&A. Relationships are less exclusive for firms with more bargaining power and more exclusive for younger, smaller firms, and firms with more growth options. Most importantly, we find strong evidence of a firm-wide relationship component that spans the functional areas of I-banking and increases over time.