EPS-Sensitivity and Merger Deals
Speaker: Dr. Fangyuan Ma (Chinese University of Hong Kong)
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Topic: |
EPS-Sensitivity and Merger Deals |
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Time&Date: |
12:00-13:30 pm, 2018/11/1 (Thursday) |
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Venue: |
Room 619, Teaching A |
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Speaker: |
Dr. Fangyuan Ma (Chinese University of Hong Kong) |
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| Abstract: |
Announcements of mergers where the target is offered stock very often discuss the impact of the deal on the acquirer’s earnings per share (EPS), especially when the deal is EPS-accretive for the acquirer. In this paper, we document that the acquirer’s EPS-sensitivity affects how deals are structured, the premium that is paid, and the types of deals that are done. We provide evidence that EPS-sensitivity of acquirers is another manifestation of short-termism, driven by institutional investor horizon as well as components of managerial compensation contract. Our results suggest that the relative popularity of deals financed in cash since early 2000 could be a consequence of acquirer’s EPS-sensitivity and low value-multiple acquirers pursuing high value-multiple targets. EPS-sensitivity is also consistent with the overall pattern of “like-buys-like” that has been documented in the literature for stock deals.
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