Regression variables

The cross-section analysis requires additional data for the control variables. As mentioned in the theory section, the control variables included are size, book-to-market, run-up, sigma, public deals, private deals, all-cash deals, payment includes stock, relative size, diversifying deals, cross-border, tender offers, hostile deals, leverage and cash flows-to-equity. As data for all of these variables is not accessible in Zephyr, from where the sample is initially drawn, it is necessary to merge the initial dataset with data from Bloomberg, Compustat and Datastream, to obtain all the data needed to conduct the analysis. Table IV summarizes definitions of all variables used in the regression analysis as well as the underlying data source. As far as possible, variables are constructed in line with Golubov et al. (2012) to secure comparability. However, this paper does not include takeover premium as an explanatory variable due to limited data. On the other hand, the cross-border variable is included as an extra variable to account for the perceived less integrated capital markets in the European Union relatively to the U.S.. The implications of cross-border deals were also discussed in section 2.4.11.

In the sample, all target firms are classified as either public, private or subsidiary. This has been done manually, since the Zephyr database does not report the listing status for all firms. Therefore, it has been necessary to supplement with information from Bloomberg’s M&A database to fill out some of the blanks and complete the dataset. Basically, firms reported as listed and with a valid ISIN code have been classified as public, firms reported as unlisted, n/a, or with no valid ISIN code have been classified as private and finally, firms where the deal comments explicitly states that the firm is a subsidiary are classified as subsidiary.

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Regression variable definitions

Variable Definition

CAR (-2, +2) The cumulative abnormal return of the acquiring firm’s stock in the 5-day event window (-2, +2) where 0 is the announcement day. CAR is calculated using log returns as inputs in the market model with the market model parameters estimated over the period starting 210 days and ending 11 days prior to the announcement. Value-weighted national market indexes are used as the market return. All return data is drawn from Datastream. Top-tier Dummy-variable: one for transactions advised by one of the top-8 financial

advisors according to the aggregated value of deals advised by each bank during the sample period, zero for all other financial advisors or if no advisor was used. The top-8 financial advisors in this paper are Morgan Stanley, Goldman Sachs, Merrill Lynch, Rothschild, JP Morgan, UBS, Lazard and Deutsche Bank (see advisor league table in table III). Financial advisor data for each deal in the sample is drawn from Zephyr, and is afterwards supplemented with additional data from Bloomberg’s M&A database to fill out any missing values.

Synergy Gain (SG) Sum of bidder- and target dollar-denominated gains (the latter computed as the market value of equity 4 weeks prior to the announcement from Datastream in USD million times the CAR(-2, +2) for the two firms)

Bidder’s Share of Synergies (BSOS)

Bidder dollar-denominated gain (computed as the market value of equity 4 weeks prior to the announcement from Datastream times CAR(-2, +2)) divided by Synergy Gain if Synergy Gain is positive and (1-Synergy Gain) if negative.

Time to Completion Number of calendar days between announcement and completion dates, both as reported by Zephyr.

Panel B: Bidder Characteristics

Size Bidder market value of equity 4 weeks prior to the announcement from Datastream in USD million. Values are transformed from local currencies to USD by using the spot exchange rates on that same date, also from Datastream.

Book-to-market Bidder book value of equity at the fiscal year-end prior to announcement divided by the market value of equity 4 weeks prior to announcement. Book value of equity is computed as total assets – total liabilities from Compustat; Market value of equity is drawn directly from Datastream. Values are transformed from local currencies to USD by using the spot exchange rates on that same date, also from Datastream.

Run-up Market-adjusted daily buy-and-hold return of the bidder’s stock over the estimation period, beginning 210 days and ending 11 days prior to the announcement from Datastream.

Sigma Standard deviation of the bidder’s market-adjusted daily stock returns over the estimation period, beginning 210 days and ending 11 days prior to the announcement, from Datastream.

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Panel B: Continued Variable Definition

Leverage Total financial debt (long-term debt + debt in current liabilities) divided by the book value of total assets for the fiscal year prior to acquisition announcement from Compustat.

Cash flows-to-equity Income before extraordinary items + depreciation – dividends on common and preferred stock from Compustat, divided by market value of equity at fiscal year-end prior to announcement from Datastream. Values are transformed from local currencies to USD by using the spot exchange rates on that same date, also from Datastream.

Panel C: Deal Characteristics

Deal value Value of the transaction in USD million from Zephyr.

Public deals Dummy variable: one for acquisitions of public firms, zero otherwise. Based on classification from Zephyr.

Private deals Dummy variable: one for acquisitions of private firms, zero otherwise. Based on classification from Zephyr.

Subsidiary deals Dummy variable: one for acquisitions of subsidiary firms, zero otherwise. Based on classification from Zephyr.

Relative size Value of the transaction from Zephyr divided by acquirer’s market value of equity 4 weeks prior to announcement from Datastream. Values are transformed from local currencies to USD by using the spot exchange rates on that same date, also from Datastream.

Hostile deals Dummy variable: one for deals defined as hostile or unsolicited by Zephyr, zero otherwise.

Tender offers Dummy variable: one for deals defined as tender offers by Zephyr, zero otherwise.

Diversifying deals Dummy variable: one for cross-industry transactions, zero for same industry transactions. Industries are classified by the first two digits in the SIC code reported by Zephyr.

Cross-border Dummy variable: one for transactions where bidder and target are not from the same country according to Zephyr, zero otherwise.

All-cash deals Dummy variable: one for deals in which payment is pure cash, zero otherwise. Based on information from Zephyr supplemented with Bloomberg.

All-stock deals Dummy variable: one for deals in which payment is pure stock, zero otherwise. Based on information from Zephyr and supplemented with Bloomberg.

Mixed deals Dummy variable: one for deals in which payment is neither all-cash or all- stock, zero otherwise. Based on information from Zephyr and supplemented with Bloomberg to fill out any missing values.

Payment incl. stock Dummy variable: one for deals in which payment includes some stock, zero otherwise. Based on information from Zephyr and supplemented with Bloomberg to fill out any missing values.

Table IV completes the data presentation and the sample is now ready to be undertaken further analysis, in order to answer the questions raised in the problem statement.

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