Research
Research Interests
Mergers and Acquisitions, Insider Trading, Corporate Governance, Executive Compensation, Payout Policy, Investor Attention
Publication
Does CFO Board Membership Benefit Shareholders? The Case of Corporate Acquisitions. (with Zhong Chen and Zicheng Lei)
Journal of Financial and Quantitative Analysis, (27 Jan 2024 Accepted/In press).
We investigate whether CFOs serving on U.S. corporate boards benefit shareholders in M&A transactions. We find that acquisitions made by firms with CFOs on boards have significantly better acquirer announcement returns. This is due to the CFO directors’ ability to select targets with better strategic and financial fit. CFO board membership can create shareholder value if there are effective governance regimes restraining managerial entrenchment and CFOs’ interests are closely aligned with those of shareholders through equity ownership. Furthermore, sitting on boards enables CFOs to secure more and cheaper financing for their acquisitions.
Presented at FMA Annual Conference, 2022; FMA Asia/Pacific Conference, 2022; FMA Europe Conference, 2022; FMARC Annual Conference, 2022.
Investor Attention and Early Announcements in Mergers and Acquisitions. (with Gulnur Muradoglu, Ni Peng, and Huai Qin)
International Review of Financial Analysis (2024), Available at ScienceDirect
We focus on the market reaction to early announcements in mergers and acquisitions and find that acquiring firms attract substantial investor attention with their early announcements. The positive relationship between early announcements and takeover short-term value effect is more pronounced for early-announced deals with greater investor attention toward deal announcements. However, this relation is reversed after merger integration, leading to a lower long-run firm value. For early-announced deals with low investor attention, neither the boosting effect of short-term value effect nor the price reversal in the long run exists. Our findings support the price pressure hypothesis for early announcements.
Presented at Behavioral Finance Working Group Conference (London, UK) , 2021; European Financial Management Association (EFMA) Conference (Leeds, UK), 2021.
Precautionary vs Signaling Motive of Share Repurchases: Evidence from Policy Uncertainty and the COVID-19 Crisis. (with Zhong Chen and Zicheng Lei)
British Journal of Management (2023), Available at Wiley
Using policy-related uncertainty as a shock to firms’ internal and external financing frictions, we find significantly lower repurchase likelihoods, short-term market reactions, and post-announcement completion rates of open market share repurchases during periods of high policy uncertainty. Firms are more likely to switch from a high- to a low-commitment repurchase technique when policy uncertainty is high. In contrast, for firms that are significantly undervalued ex ante, higher policy uncertainty leads to more repurchase activities. In addition, we show that the COVID-19 crisis is associated with a lower repurchase likelihood for financially constrained firms or those with high cash flow volatility, while undervalued firms repurchased more shares during the pandemic period. Our results are robust after controlling for potential sources of endogeneity and conducting a battery of robustness tests. Collectively, our evidence suggests that the relationship between uncertainty and share repurchases is conditional on institutional contexts. Firms’ level of financial flexibility, their demand for signalling, and the credibility and magnitude of repurchase signals all significantly affect their precautionary and signalling motives.
Target insiders' preferences when trading before takeover announcements: deal completion probability, premium and deal characteristics (with Jana Fidrmuc)
European Financial Management (2022), Available at Wiley
“The Paper with The Most Potential for publication” at the 2015 8th International Accounting and Finance Doctoral Symposium at Slovenia
Abstract: We contribute to the M&A literature by characterizing the information available to target insiders during the pre-public takeover negotiations. We analyze insider trading in target firms in the US between 2005 and 2018. First, we show that signing confidentiality agreements is an important information threshold. Second, insiders have a good grasp of deal success. They increase their net purchases only in deals with higher completion probability. Third, insiders guess the final offer price well, but their trading strategies additionally reflect their knowledge of deal characteristics. They prefer bidder-initiated, cash, privately negotiated, and strategic deals. Insiders combine several sources of information.
Presented at 8th International Accounting and Finance Doctoral Symposium (Slovenia), 2015; ECCCS workshop at SKEMA Business School (Paris), 2016; IFABS Conference: special issue in Journal of Banking and Finance (Barcelona) 2016; European Financial Management Association (EFMA) Conference (Basel) 2016; World Finance Conference (New York), 2016; Slovak Economic Association Meeting, 2018; European Financial Management Association (EFMA) Conference (Ponta Delgada, Portugal), 2019.
M&A deal initiation and managerial motivation (with Jana Fidrmuc)
Journal of Corporate Finance (2019), Available at ScienceDirect
Abstract: This paper contributes to our understanding of managers' motivations for initiating the sale of their company. Using a sample of 1,098 publicly-listed US target firms with completed deals, we show that deals initiated by the target firm rather than by outside bidders have higher CEO ownership. Furthermore, CEOs are motivated to offer their firms for sale also by higher golden parachutes, stock and stock option grants prior to takeovers. Our results suggest that motivated CEOs participate actively in deal negotiations, rather than being bribed not to resist the deal. In target-initiated deal firms, CEO ownership and equity grants are also positively correlated with takeover premiums.
Presented at Brown Bag Series at Warwick Business School, 2013; Young Finance Scholar’s Conference (Brighton), 2014; 7th International Accounting and Finance Doctoral Symposium (Norway), 2014; Monday Research Seminar at SKEMA Business School (Lille), 2014; European Financial Management Association (EFMA) Conference (Amsterdam), 2015; IFABS Conference: special issue in Journal of Corporate Finance (Oxford), 2015.
Attracts media attention: an invitation from the Columbia Law School’s Blue Sky Blog to write a post.
Working Papers
Unraveling acquirer insiders’ trading behavior in the M&A spotlight. (with Zhong Chen, Jana Fidrmuc, and Zicheng Lei)
Semifinalist for one of six best paper awards at the 2020 FMA Virtual Conference
We investigate acquirer insiders' information advantage through their passive trading during takeovers. We show that insiders increase net purchases by postponing sales before and after deal announcements for deals with good asset fit and organized as informal sales. Insiders also increase their net purchases in stock deals before merger completion. Further analysis shows a connection between insider net purchases and high merger-arbitrage short selling of acquiring firms in stock deals. Insiders resume normal trading patterns immediately after the deal completion. Acquiring firms with the highest increase in net insider purchases exhibit better long-term operating performance.
Presented at Financial Management Association (FMA) Virtual 2020; Financial Management & Accounting Research Conference (Paphos, Cyprus) (Coauthor present), 2021; Behavioral Finance Working Group Conference (London), 2021; FMA European Conference (Lyon, Coauthor present), 2022; European Financial Management Association (EFMA) Conference , 2022; King’s Business School Seminar, King’s College London (Coauthor present), 2022.
Asset complementarity and optimality of one-to-one negotiations when selling firms. (with Jana Fidrmuc and Kostas Koufopoulos)
This paper explores the question of the optimality of negotiations with one invited bidder from the seller's point of view. We develop a simple model where synergies created in deals depend on the complementarity of assets between targets and bidders and differ across different bidders. The model shows that the target manager may optimally choose to invite only one bidder into sale negotiations. The key feature of the model is that the target manager is able to divide potential bidders into groups according to their asset complementarity with the target firm and rank these groups by the value their members can create if combined with the target. The target manager is not able to distinguish among bidders within each group. Given small bidding cost per bidder paid by the target firm, it is optimal for the target manager to invite into auction only the group of bidders with the highest complementarity of assets. Empirical tests confirm two model predictions linking the ability of the target manager to differentiate among potential bidders according to asset complementarities with the target and (i) the number of bidders invited into the selling auction and (ii) the winning bidder's bargaining power.
Presented at Northern Finance Association Conference (Mont-Tremblant, QC, Canada), 2016; Behavioral Finance Working Group Conference (London), 2017; European Financial Management Association (EFMA) Conference (Athens), 2017; IFABS Conference (Ningbo, China), 2017; Czech Economic Society and Slovak Economic Association Meeting (Coauthor present), 2019; FMA European Virtual Conference (Coauthor present), 2021; Financial Management & Accounting Research Conference (Paphos, Cyprus), 2021.
Industry tournament incentives and deal initiation in M&As. (with Gulnur Muradoglu, Ni Peng, and Huai Qin)
Working in Progress
Target insiders as risk arbitrageurs. (with Jana Fidrmuc)
The effect of target CEO network on acquirer stock performance. (with Gulnur Muradoglu and Ni Peng)
CEO short-horizon incentives and early announcements in takeovers. (with Gulnur Muradoglu, Ni Peng, and Huai Qin)