Date of Award

1997

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

William R. Lane

Abstract

This dissertation provides a detailed analysis of the medium of exchange in corporate takeovers. Previous theoretical works and empirical evidence suggest three distinct (but not necessarily mutually exclusive) elements of information asymmetry: the bidder's value, the target's value, and the synergy from a takeover. Chapter two of this dissertation integrates the theory of financial intermediation into the research of the medium of exchange in takeovers. The research question is how the bidders with favorable information employ financial intermediaries, such as accounting firms, investment banks, and commercial banks, to reduce the market's unfavorable reaction to announcements of equity-financed takeovers. Chapter three examines whether the method of payment conveys information about the value of the target firms. Chapter four analyzes the information content of changes in payment terms in the takeover process. Results in chapter two indicate that the existence of high-quality financial intermediaries, particularly commercial banks, of bidders reduces the market's unfavorable reaction to announcements of equity-financed takeovers. In stock offers, the bidders' announcement excess returns are a positive function of bidders' commercial banking relationship. The evidence on accounting firms and investment banks is not found. Evidence in chapter three does not support the notion that the method of payment in takeovers conveys information about the value of the target companies. Revisions of analysts' forecasts of earnings for the target firms at announcements of tender offers involving stock as the method of payment are similar to those at announcements of cash tender offers. This suggests that if there is any information revealed by the medium of exchange in takeovers, the information is unlikely to be about the value of the targets. Results in chapter four are consistent with the notion that changes in the medium of exchange in takeovers reveal information about the value of the bidders. After controlling for changes in the takeover premium which accompany the revisions of payment terms, bidders' announcement excess returns are approximately two percent lower for increases in the stock component than for increases in the cash component. Taken together, the evidence presented in this dissertation suggests that the medium of exchange in takeovers conveys information about the bidders' value rather than the targets' value.

ISBN

9780591591538

Pages

129

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