CEOs, abandoned acquisitions, and the media

Do the media play a role in corporate governance and, if so, how? Those questions are broad and their answers have implications. This is especially so countries such as U.S. that characterized by free vigorous business press. By governance, we mean traditional of monitoring management to ensure top managers act shareholders’ interests. So whether this active coverage plays guiding interests how do they it. Academic studies proposed can influencing value managers’ reputational capital.1 In framework, manager's capital viewed present his future wages employment opportunities.2 The said affect values reporting on actions shaping perceptions those actions. And extent influence capital, Whether so—and ways interests—are open questions. We address one specific set circumstances: namely, when would-be acquirers considering carry out or abandon acquisition attempts market perceives “value-reducing.” Several prior reported significantly more likely takeover responds announcement with downward revision potential acquirer's stock price. A common interpretation finding “managers listen market.” But begs question: why market? Our answer question acquirers’ managers—their CEOs—have two sets skin game. First, perhaps obviously, CEO owns acquiring company. Call financial capital. To cancellation “value-reducing” results recovery period price decline shares company, stands gain from recovery. Second, propose personal may also been diminished result market's perception announced attempt value-destroying. CEO's interpreting disseminating information about decisions. worse tone broader its dissemination, greater negative impact has attempt, abandonment be associated loss. There at least three testable predictions follow reasoning. dollar amount ownership acquirer, value-reducing attempt. abandoned. Third, combination tone, It last prediction lies heart our proposals. interaction breadth influences managerial All these depend, course, expectation will whatever lost coverage. study whose findings an article recently published Journal Financial Economics, tested analyzing 636 public companies during 1990–2010. Each deals had transaction $100 million, each experienced reaction initial announcement. Consistent propositions, find loss through shares, therefore hoped-for event deal abandonment, likelihood abandonment. further abandoned feature distinguishes statistical analysis take account share proxy for models, alone no longer statistically significant predictor implication it so. That is, self-interest human Keep mind predicated reversal decisions undertake some monetary were Thus, round analysis, examined prices around announcements cancellations attempts. accompanied positive average reactions. What's more, response tends positive, evidence supports proposition recover value, both monetarily reputationally, number being acquirer attempt.3 interpreted market” (or completion) opportunities. careful sometimes market. After all, not all receive Many suggested certain observable unobservable benefits acquisitions, many which managing larger enterprise.4 If significant, then becomes: ever acquisitions? because stake. working hypothesis abandoning outweigh completing More specifically, there main relate (and additional could lost) goes forward. declined decline, expect, hope, form labor abilities manager. able should challenges designing was measure thereby, where enter picture. Media coverage, considered source lost—and potentially recovered. As mentioned earlier, starting Luigi Zingales (2000) argued governance. Dyck et al. (2008) built upon observation making connection between general. They forth model risk Their opportunities managers. These lie realm informed (i.e., given CEO's) actions, sense, media, events serve monitor activities With thinking mind, used laboratory identify obtained acquisitions 537 publicly traded million transaction, firm's cumulative abnormal return (CAR) negative. CAR measured sum differences daily returns CRSP value-weighted over 3-day interval surrounding acquisition. sample dates transactions Thomson Securities Data Company's (SDC) US Mergers Acquisitions database. knowledge, includes meet criteria. Panel Table 1 (column 2) gives time series far largest took place 2000, 67. year fewest 1991, just seven. Abandoned (as column 3) varied considerably time, none 1991 high 14 1996. total, 19% CARs Interestingly, percentage evenly distributed across than Nonetheless, seven 20 2009 B industry classifications industries greatest representation based primary two-digit SIC code. come 51 different industries. Not surprisingly, Business Services, encompasses firms general, among attempts, 131. shown B, however, much variables interest us following two: (1) change transaction; (2) For gathered ExecuComp. times CAR. counting transaction-specific news stories appeared Wall Street (WSJ), New York Times (NYT), Dow Jones News Service (DJNS) ten calendar days beginning day transaction. labeled variable attention. calculating “negative” words divided total stories.5 called tone. 2 preliminary statistics regarding key variables. simple comparisons consistent but interactions variables, later 3, provide robust formal test. first row 2, studies, median eventually (mean = −8.73%; −6.77%) completed −7.55%; −5.72%). results, already noted, idea complete) unanswered question, continue while others? aims answer. seen rows 2. second row, $487.35 million; $10.74 million) $98.89 $8.31 million). Further, consequentially, third −51.76 −$0.50 −$5.86 −$0.42 indicate that, ignoring other factors, CEOs means own fourth fifth table report meant capture any, setting. attention pronounced 7.51; 5.00) 4.01; 3.00), highly significant. Greater clearly point direction playing perceptions, but, standing alone, appear powerful. 5.28 4.99; 5.17 4.96. stage consideration propositions. Recall propositions gains manager larger. forms: announced; try CAR, attention, recovers appears extensive coverage—especially slant—the canceling consider ideas step-wise tests 3. 3 shows probit analyses dependent 0 depending completed. estimations along control defined Appendix. (whose 3), include only (along variables). relation listening so? subsequent models question. coefficient might expected, announcing therefore, At same remains significant—and this, turn, suggests recovery) factor decision remaining columns factors of) Model (3) interacted × attention). (4) estimations, coefficients neither importance fourfold. insignificance indicates imply level slant matter. significance CAR) implies transformation into consequence Fourth, continued decision. latter possible takeover. final (1)–(4) tone) triple tone). Arguably, addresses full. table, 3-way Simply stated, declined. Rather, data paying he Key expect losses reasonability expectation, examine “Withdrawn Date” (we label “Abandonment CAR”). classify abandonments groups CARs. most Low group High group. calculate Abandonment entire set, 2.71%. average, good shareholders recovering important purposes, increase magnitude move High. group, 5.71%; Middle 1.65%; 0.73%. presumption firm reasonably part 2008, Microsoft launched bid Yahoo. On February 1, takeover, fell 8.4%. Within 7 days, received 62 reports 9.02% articles carrying (in sample, averages numbers 4.7 5.12%). Steve Balmer, Microsoft, owned $13.7 billion worth options. Mr. Ballmer May 2008. HP initiated buy Electronic System. day, 13, company's 8.5%. contrast Microsoft-Yahoo HP/EDS within 3.74% HP, Mark Hurd, $26 12, Both occurred 2008 sector. Also, similar size declines −8.5% However, striking regard ownership, involved, canceled. Prior negatively correlated One “listen complete acquisitions. is: Part sense obligation shareholders, concern consequences—including possibility subjected offer themselves—of failing maximize shareholder value. Another shareholdings firm, incurred But, reviewed article, risk, reverse any Using measures together capital), three-way interpret sensitive short, CEOs’ concerns effects induces them