Graduation Year

2014

Document Type

Dissertation

Degree

Ph.D.

Degree Granting Department

Finance

Major Professor

Ninon Sutton, Ph.D.

Committee Member

Daniel Bradley, Ph.D.

Committee Member

Christos Pantzalis, Ph.D.

Committee Member

Jianping Qi, Ph.D.

Keywords

diversification, Family firms, innovation, mergers and acquisitions, shareholder rights

Abstract

We compare acquisition activity, method of payment choice, and the long-run value implications of acquisitions by newly public single-class and dual-class US companies. Our results show that dual-class IPO firms make relatively more acquisitions in innovative industries and are less likely to pay with stock as compared to single-class IPO firms. We provide evidence that the reluctance of dual-class firms to pay with stock is not related to the insiders' cash-flow rights but it is significantly positively related to the insiders' voting rights and wedge between the insiders' voting rights and cash-flow rights. We also find that acquiring dual-class IPOs perform better in the long-run than acquiring single-class IPO firms, and the better performance is mainly due to acquisitions in innovative industries. The results suggest that insiders of dual-class IPOs try to retain control during subsequent M&A activities. The governance structure in such firms allows them to make investments in high risk projects that enhance shareholder value in the long-run. Next, we examine the acquisition performance of family and non-family firms in the S&P 500 universe. Using style-adjusted and market-adjusted buy-and-hold returns (BHAR) and controlling for firm and merger characteristics, we find that the post-merger performance of family firms is significantly better than that of non-family firms. In particular, the mean one-year style-adjusted buy-and hold abnormal return is around 18% higher for family acquirers than for non-family acquirers. Further, contrary to the argument that founding family members make value-destroying diversifying acquisitions to minimize the risk of their personal portfolio, we do not find that family firms lose value in diversifying acquisitions. This result is consistent with Stein's model (1997) showing that diversification helps to reduce the cost of capital of the firm.

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