The trading and impact of institutional investors in target firms around merger bids

• Main Author: Silveri, Sabatino
• Format: Dissertation
• Language: English
• Subjects: economics, finance
• ISBN: 9781109273274; 1109273274

Institutions constitute the largest investor group in the U.S. equity markets. This dissertation investigates the role of institutional investors in the market for corporate control along two dimensions: institutional trading behavior and institutional style preferences using regression analysis and a sample of over 1,000 mergers between 1980 and 2006.
Prior literature argues that stock-for-stock mergers are often financed by overvalued stock. Contrarily, this dissertation finds that though institutions are net sellers in stock-for-stock deals, they retain significantly more shares when valuation measures suggest a greater potential for acquirer overvaluation. In addition, it is found that share retention is increasing in the acquirer's price-to-book ratio regardless of whether the institution prefers growth or value stocks. Institutions with large-cap, growth-stock preferences are particularly enthusiastic about bids from large high price-to-book acquirers, substantially increasing their stakes in such deals.
The findings from the regression analysis in this dissertation also suggest that those institutional owners who demonstrate a preference for growth stocks in their portfolio strategies are more likely to choose stock-financing. Moreover, bid premiums in stock deals are decreasing in the target ownership by such institutions. These findings highlight the importance of shareholder style preferences in the market for corporate control and, more generally, further contribute to the understanding of the implications of shareholder composition.