Essays on mergers and acquisitions around the world

In Chapter 1, we identify and explore three areas of research on US M&A. We also describe how each chapter of the paper relates to these areas of research. In the following chapter, we introduce a new test approach based on existing theory, particularly the well-known paper using the comprehensive policy uncertainty measure (EPU) developed by Baker et al. (2016). In Chapter 2, we introduce a novel test that builds upon existing theory, particularly notable papers that adopted the comprehensive policy uncertainty measurement (EPU) developed by Baker et al. (2016) to investigate the negative impacts of policy uncertainty on U.S. mergers and acquisitions (Nguyen and Phan, 2017; Bonaime et al., 2018). However, Hassan et al. (2019) discovered that firm-level political risk (PRisk) accounts for 91% of overall uncertainty. We replaced EPU with PRisk, and our results continuously support prior evidence indicating that uncertainties negatively influence deal performance. Nevertheless, we utilise the tax haven index, which was developed by Meier and Smith (2023), and the results suggest a strong positive correlation between the effective tax rate and the probability of cross-border mergers and acquisitions in the United States. Choi et al. (2022) suggest that successful lobbying could ease the negative effects of political risk on corporate investment decisions while reducing political risk (Islam et al., 2022). Liu et al. (2022) address that corporate tax rates could be strongly influenced by the manager's tone during the earnings conference calls. Following these tests, we continue to find that PRisk can be strongly mitigated by corporate tax rates. Thus, when firms face PRisk and tax payment issues, acquirers tend to bid for targets in tax havens. Chapter 3 examines the relationship between inflation and U.S. domestic transaction activities, building on prior studies that investigated state inflation dynamics' influence on cross-border M&A activities (Black, 2000; Uddin and Boateng, 2011; Boateng et al., 2017). Similar to studies by Travlos (1987) and Eckbo (2009), we test the likelihood of cash bidders versus stock bidders, finding that cash bidders’ shareholders generally enjoy more favourable returns (Travlos, 1987). A recent study by Yang et al. (2019) identified excess cash as a determinant of mergers and acquisitions. Our test finds that inflation significantly decreases the favorability of U.S. domestic transactions. However, firms tend to engage in acquisitions while holding excess cash during inflationary periods. Furthermore, pure cash deals tend to be more common during inflationary periods, and vice versa. Regarding shareholder returns, our findings align with Travlos's (1987) arguments. Chapter 4 investigates the effects of the insider trading laws' enforcement on cross-border acquisitions bid by U.S. acquirers. Prior studies have explored the initial enforcement of insider trading laws on stock market performance, both in terms of frequencies and profits (Bris, 2005). This argument is further supported by evidence showing enhanced capital market efficiency in developed markets, which reduces equity costs and improves liquidity (Fernandes & Ferreira, 2009; Bris, 2005). The impact of the enforcement of insider trading laws on firm valuation during transactions varies (Bhattacharya, 2023). Additionally, misvaluation (Rhodes-Kropf and Viswanathan, 2004) and stock price informativeness (Bai et al., 2016) have crucial impacts on mergers and acquisitions. Gao (2011) suggests that bidders prefer to pay with stock, indicating overvaluation. Myers and Majluf (1984) argue that when investors find companies issuing shares without the need to invest capital, this indicates overvaluation. Hackbarth and Morellec (2008) point out that insider trading laws prohibit insiders from sending signals to the market, so market prices reflect information from outsiders. In our test, the initial enforcement of insider trading laws positively affected U.S. acquirers significantly. Additionally, an increase in price informativeness drives cash bidders. Cash bidders have significant and positive returns, whereas stock bidders have negative returns. The last chapter provides a conclusion of the findings, limitations, and suggestions for further research directions.