The board of directors and the equity ownership structure of the firm are two important corporate governance mechanisms and in this article, I use Taiwan acquisition data from 2000 to 2008 which include 118 acquisition cases made by 83 firms listed in TWSE and GTSM. Although board of directors is one of an important CG mechanism, it has no significant effect on the acquisition CAR in all three regression models.
On the other hand, ownership structure has some influence on bidder’s return.
We can find that blockholders and foreign investors holding rate both have significant
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effects on the CAR and deal characteristics have no significant effect on the CAR.
This paper is the first one to link internal CG mechanisms and acquirer returns in Taiwan and I find that some mechanisms do have influence on the acquirer returns.
Although some variables in this model have explanatory capability to the CAR, the number of acquisition cases is too few to do a perfect research. My sample contains only 118 acquisition event and thus the variables are sensitive to any tiny move. It is because there are fewer acquisition cases in Taiwan than in the US and there is no professional institution which is professional in collecting M&A’s data. It makes the research in M&As in Taiwan market hard.
For investors, at least they have some directions to decide if they should invest a company when the company announces an acquisition. Because the acquisition CAR in this sample is not significantly different from zero, investors should watch bidder’s corporate governance and its characteristics when they choose stocks.
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Appendix I: Variable Definitions
Variable Definitions
Panel A: CAR and Board Effect
CAR Five-day cumulative abnormal return (in percentage point) calculated using the market model. The market model
parameters are estimated using the return data for the period (-300,-101)
Board size Number of directors on bidder’s board.
Board pledge rate Shares pledged by directors over the total shares they hold.
Independent board Number of independent directors over the number of total directors
CEO Dummy variable: 1 if the bidder CEO is also chairman of the board, 0 otherwise.
Panel B: Ownership Effect Excess Control Voting right minus cash flow right
Board holding rate Shares held by directors over the total shares outstanding.
BLOCK Shares held by blockholders (at least 10%) over the total shares outstanding.
MNG Shares held by managers over the total shares outstanding.
Foreign Investors Shares held by foreign investors over the total shares outstanding.
Family holding rate
Shares held by family members, including individuals, or foundations and corporations controlled by family members, over the total shares outstanding.
Panel C: Bidder Characteristics Firm size Book value of total assets ($billions) Market
capitalization
Number of shares outstanding multiplied by the stock price at the 101st Trading day prior to announcement date
Tobin’s Q Market value of total equity plus book value of total debt over book value of total asset
Free cash flow Operating cash flow-capital expenditures scaled by book value of total asset
Leverage Total debt over total asset
Stock price runup Bidder’s buy-and-hold abnormal return during the period (-300,-100). The market index is the TAIEX.
Panel D: Deal Characteristics
High-tech Dummy variable: 1 if bidder and target are both from the high tech industries, 0 otherwise.
Target Dummy variable: 1 if the target is domiciled in the country outside of Taiwan, 0 otherwise
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Appendix II: Pearson Correlation Matrix
The sample consist of 118 completed Taiwan mergers and acquisitions (listed in SDC) between 2000and 2008 made by firms listed in TWSE and GTSM.
P-values are shown in parentheses. Variable definitions are in the Appendix I.
CAR Board
Investors Family Asset Tobin’s
Q Leverage FCF
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