Essays on M&As: the effect of political ideology divergence, climate change and technology on M&As

Xue, Y. (2024) Essays on M&As: the effect of political ideology divergence, climate change and technology on M&As. PhD thesis, University of Reading. doi: 10.48683/1926.00116238

Abstract/Summary

This thesis attempts to contribute to the strand of determinants of mergers and acquisitions (M&As) and the performance of acquisitions in the US and international markets, and it is composed of three main chapters. The first main chapter examines the role of political ideology divergence (PID) between the CEO and board of directors in the context of mergers and acquisitions. Using a sample of 2,083 US-listed firms from 2000 to 2020, this study finds that firms with greater PID are positively associated with the likelihood of engaging in M&A activities. The results demonstrate that CEO risk-taking behaviours, proxied by CEO overconfidence, founder CEO, and pay for performance sensitivity, explain this positive relationship. Various identification strategies are employed to address endogeneity concerns and confirm the robustness of the findings. Furthermore, the research suggests that a higher level of PID has a positive effect on post-deal long-term stock return and operating performance. This study also finds that monitoring, through mechanisms such as board meeting frequency, institutional ownership, and independent directors, plays a moderating role in this long-term performance. Overall, these findings suggest that PID is a critical determinant of M&A decisions. The second main chapter investigates the effect of firm-level climate change exposures on mergers and acquisitions with global evidence. Using the climate change exposures of Sautner et al. (2023), we find that firms facing higher climate change exposure exhibit a reduced propensity to initiate and finalise acquisitions while allocating more resources to capital expenditures. The increased cost of external financing and low consumer confidence help explain the negative relationship between climate change exposure and acquisition likelihood. This negative effect of climate change exposure is more pronounced for acquirers of relatively small size, with steep growth potential, facing financial constraints, and those operating within pro-cyclical industries. When undertaking M&As, firms facing higher climate change exposure take a longer time to complete a deal and post poor announcement returns and operating performance. Several identification strategies address endogeneity concerns and ensure the robustness of the findings. Overall, this study emphasises the importance of considering climate change risks in M&A decision making. The third main chapter investigates the post-merger short- and long-run performance of technology-related M&As using a global sample. Deals are classified according to the technological distance between acquirers and targets. Technologically distant pairs lead to higher announcement returns for acquirer shareholders, especially when targets are private. In contrast, pure technology deals gain significantly less and even adversely affect firm value. The positive wealth effect of technologically distant deals is more pronounced when the bidder is in a non-tech industry. Non-tech bidders acquiring tech targets have the highest positive change in operating performance among all acquisition types, suggesting better integration. Taken together, this study assesses the short- and long-term performance of technology-related M&As, emphasising that technologically distant firms yield higher returns for acquirers while similar technology deals are less beneficial and may even reduce value. This thesis critically analyses the factors influencing the initiation and effectiveness of M&As in the US or international markets, encapsulated in three chapters. It identifies political ideology divergence (PID) between the CEO and board, the impact of climate change exposure, and the technological distance between acquirers and targets as key determinants impacting M&A propensity, completion time, stock returns, and post-deal performance.

Item Type	Thesis (PhD)
URI	https://reading-clone.eprints-hosting.org/id/eprint/116238
Identification Number/DOI	10.48683/1926.00116238
Divisions	Henley Business School > Finance and Accounting
Date on Title Page	December 2023
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