Three essays on corporate acquisitions, bidders' liquidity, and monitoring
This dissertation consists of three essays on corporate acquisitions, bidders’ liquidity and monitoring. In the first essay, “Acquisitions and Bidders’ Liquidity: Evidence from Successful and Unsuccessful Takeovers”, I examine the impact of corporate acquisitions on bidders’ liquidity. I find that liquidity improves for bidders that complete the takeovers but remains unchanged or decreases for unsuccessful bidders. Takeovers of public firms result in similar liquidity improvements as do takeovers of private firms. Takeovers that use stock as the method of payment have significantly more improvement in liquidity than takeovers that use cash as the payment method. These results suggest that changes in firm characteristics provide the primary impetus for liquidity improvements following acquisitions. They also support the premise that bundling two publicly held claims reduces the information advantage of informed traders. In essay two, “Liquidity and Market Monitoring: An Examination of Changes in Market Monitoring for Successful Bidders”, I use takeover as a liquidity-changing event to examine empirically the relation between liquidity and monitoring of the firm. Dividing acquisitions into liquidity-improved and liquidity-decreased groups, I find that the Hasbrouck (1993) pricing error decreases significantly for the liquidity-improved bidders but increases significantly for the liquidity-decreased bidders. This evidence suggests that price becomes more (less) informative for the liquidity-improved (decreased) bidders and therefore provides greater incentives for outsiders to monitor the firm. Consistent with improved monitoring, I find that the liquidity-improved bidders have better operating performance and higher firm value than the liquidity-decreased bidders. In essay three, “Liquidity and Corporate Governance: An Examination of Changes in Corporate Governance for Successful Bidders”, I examine empirically the influence of liquidity on a firm’s corporate governance. I find that compared to the liquidity-decreased bidders, executives for the liquidity-improved bidders have significantly larger size- and industry-adjusted increases in cash and total compensation after the acquisitions. The pay-for-performance sensitivity of executive compensation decrease significantly for the liquidity-improved bidders. These results support the proposition that an improvement in liquidity results in a more informative stock price that enables a firm to write more efficient contracts.
acquisitions, liquidity, information asymmetry, monitoring
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