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Corporate asset restructuring through mergers and acquisitions and divestitures

Lee, V. Y. (2021) Corporate asset restructuring through mergers and acquisitions and divestitures. PhD thesis, University of Reading

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To link to this item DOI: 10.48683/1926.00101461


This thesis examines three separate topics related to corporate asset restructurings involving mergers and acquisitions and divestitures. Chapter 2 studies whether the explosive rise of boutique investment banks is justified by their M&A buyside success. Using the U.S. domestic deals during the period 2000 to 2016, short- and long-term event study analyses are performed to estimate shareholder wealth effects on boutique-led M&As. The results show that acquiring firms represented by boutique advisors generate significantly higher abnormal returns than those advised by full-service banks in difficult-to-value transactions with greater information asymmetry. These deals include private target deals, cross-industry acquisitions, and deals involving inexperienced bidders in the target sector. In these deals, boutique advisors reduce information asymmetry on the target firm and accrue more value creation to acquirers than do full-service banks using their distinctive knowledge and expertise in the target industry. This study provides important implications for conventional wisdom on the role of financial advisors in M&As. Chapter 3 investigates various motives of bank divestiture that are previously undocumented based on the neoclassical theory and the resource-based view. Contrasting to previous findings, I find that bank divestitures are not motivated by regulatory capital requirement but are driven by mergers and bank-specific characteristics such as operating inefficiency, size, performance, and financial constraints. I also study how banks choose between focusing and diversifying strategies using both mergers and divestitures in the perspective of organizational search and select. These two strategies are sequentially implemented depending on banks’ performance and productivity. Banks use focusing strategy when they experience increasing performance and loan growth while diversifying strategy is pursued when they face financial distress and operating inefficiency. These findings have an important implication on short-term equity valuation: diversifying strategy induces negative announcement returns due to this endogenous selection by banks with declining productivity while firms with focusing strategy receive premium valuation due to their ex-ante outperformance. However, in the long-run, the abnormal effects dissipate and banks with both strategies perform comparably to their benchmarks. These findings provide considerable insights as to the role of bank divestiture in dynamic asset restructuring and subsequent performance. Chapter 4 examines the role of divestiture as a turnaround strategy for a sample of U.S. firms faced with financial distress during the 2008 global financial crisis. Despite a widespread belief that divestments in an illiquid market destroy firm value with potential fire sale discounts, the evidence shows that divestiture has a positive impact on resolution of financial distress and long-term performance recovery. Over the 3-year period subsequent to divestiture, firms significantly improve their long-term operating performance compared to their non-divesting benchmarks. This outperformance appears to be attributed to financing benefits linked to an asset liquidation that can be used to relax financial constraints and subsidize continued investment in the remaining divisions. On the contrary, retrenchment strategies focusing on short-term cash flows and cost-cutting tactics through operational and financial restructurings exacerbate financial distress and trigger performance decline. This research sheds light on the long-term implications of corporate turnaround strategies employed by distressed firms in periods of economic downturn.

Item Type:Thesis (PhD)
Thesis Supervisor:Alexandridis, G. and Antypas, N.
Thesis/Report Department:Henley Business School
Identification Number/DOI:
Divisions:Henley Business School > ICMA Centre
ID Code:101461


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