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Journal of Economics and Finance

08.05.2024

Certification of acquisitions by external parties: evidence on acquirers’ banking relationships

verfasst von: Chih-Huei Banks

Erschienen in: Journal of Economics and Finance

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Abstract

This paper provides evidence that acquirers earn higher returns and are less likely to complete acquisitions when relationship banks play a certification role. The greater the intensity of the acquirer’s prior bank lending relationship, the higher the acquirer’s abnormal announcement returns, particularly if the deal is completed eventually. Conditional on merger completion, prior bank lending relationships are positively associated with the greater use of cash, indicating that studies finding positive returns for cash-financed acquisitions may contain bank certification effects.

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A manual check comparing acquirers’ names to company names on Compustat was implemented after the CUSIP’s matching to make sure that the matching procedure was consistent and to maximize the number of matched observations.

Bank lenders or banks in this paper refer to all types of lenders recognized by LPC DealScan database, rather than narrowly defined commercial banks only.

Following the literature (e.g. Bharath et al. (2007)), bank lending relationships in this paper are measured using syndicated loan activity obtained from DealScan. Syndicated bank loans are important sources of financing for mergers and acquisitions, and DealScan obtains data on borrowing by private firms. In contrast, Compustat focuses on publicly-traded firms and does not distinguish between bank loans and non-relationship sources of financing such as bond issues.

Other regression results based on different abnormal return measures, including the market-adjusted return model (MAR), single-factor capital asset pricing model (MM), and the Fama–French 3-factor model (FF3), are available upon request. MAR and MM cumulative abnormal returns are extracted from the Eventus system [Cowen, Arnold R. Eventus software, version 8.0].].

Other event windows, e.g. one-day and three-day windows, are also calculated for robustness tests. Results using these event windows are available upon request.

Two additional relationship intensity dummies (max_Rdeals_high_dum = 1 if max_Rdeals > 0.5, and zero otherwise; max_Ramount_high_dum = 1 if max_Ramount > 0.5, and zero otherwise) are conducted to replace max_Rdeals and max_Ramount as robustness tests. These two additional relationship intensity dummies yield similar results, and results are available upon request.

Probit regression models are conducted as a robustness test and yield similar results. Results can be provided upon request.

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Titel: Certification of acquisitions by external parties: evidence on acquirers’ banking relationships
verfasst von: Chih-Huei Banks
Publikationsdatum: 08.05.2024
Verlag: Springer US
Erschienen in: Journal of Economics and Finance
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI: https://doi.org/10.1007/s12197-024-09671-0