Massimo Massa from INSEAD is giving a VGSF research seminar on "Cosmetic
Mergers: The Effect of Style Investing on the Market for Corporate Control"
on FRIDAY, April 20th, from 15:30 to 17:00 in HS 7 at the BWZ,
Brünnerstrasse 72, 1210 Wien. See the VGSF webpage (Activities & Events -->
Research Seminars) for a map of the location, the paper to download and this
term's entire schedule of seminars.
Please find the paper's abstract below. Massimo is going to be in Vienna on
Friday. He would be very happy to discuss research with the local faculty.
Please contact Michael Halling if you are interested and would like to take
advantage of this opportunity.
Best,
Michael Halling
Abstract
We study the impact of style investing on the market for corporate control.
We argue that a firm may choose to boost its market value by merging with a
firm that belongs to a style that is more favored by the market. By using
data on the flows in mutual funds, we construct a measure of neglectedness,
which relies directly on the identification of sentiment-induced investor
demand, rather than being a direct transformation of stock market data. We
show that bidders tend to pair with targets that are relatively less
neglected. The merger with a less neglected target generates a halo effect
from the target to the bidder that induces the market to evaluate the assets
of the more neglected bidder at the (inflated) market value of the less
neglected target. Both bidder and target premia are positively related to
the difference in neglectedness between bidder and target. However, the
targets ability to appropriate the gain is reduced by the fact that its
bargaining position is weaker when the bidders potential for asset
appreciation is higher. We document a better medium-term performance of more
neglected firms taking over less neglected firms. The bidder managers
engaging in these cosmetic mergers take advantage of the window of
opportunity created by the higher stock price induced by the M&A deal to
reduce their stake in the firm under convenient conditions.