Corporate Finance, Mergers and Acquisitions, Corporate Investment, Corporate Governance, Behavioral Finance, Emerging Markets
1. Investor Disagreement and Outcomes of Mergers and Acquisitions (Job Market Paper)
This paper examines the divergence of investor opinions about target firm values after the announcement of M&A deals (“investor disagreement”). I create three measures of investor disagreement using the target firm’s trading volume, bid-ask spread, and stock return volatility during a two-week window following a deal announcement. I find that investor disagreement is positively associated with deal complexity, and negatively with the offer premium. Deals with larger investor disagreement are more likely to be renegotiated, to feature slower completion time, and to fail, even after controlling for announcement returns and merger arbitrage spreads. Consistent with the divergence of opinion theory, a trading strategy that invests in target firms with low investor disagreement yields positive abnormal returns. Overall, my results highlight the importance of investor disagreement in predicting M&A outcomes.
2. Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions (with Vijay Yerramilli)
– Presentations: AFA 2018 (scheduled), FMA 2017, Indian School of Business Summer Research Conference 2016
We show that M&A deals that are announced when the bidder’s relative value (ratio of bidder’s equity value to target’s equity value) is closer to its 52-week high feature higher offer premium, lower (higher) announcement returns for the bidding (target) firm, and are more likely to fail, all else equal. Yet, bidders in such deals also experience large abnormal returns in the two-year period surrounding the announcement. Our results suggest that bidders strategically choose announcement timing to exploit relative misvaluation, and cast doubt on the idea that announcement returns represent the gains to long-term shareholders of bidding firms.
3. Uncertainty, Capital Investment, and Corporate Diversification
– Presentations: Midwest Finance Association Meetings 2017, FMA 2015
This paper examines how the effect of uncertainty on capital investment varies between focused firms and conglomerate segments. One of the advantages of conglomeration is that segments have access to the conglomerate’s internal capital market and are thus less likely to be financially constrained. Consistent with the idea that uncertainty exacerbates financial frictions, I find that industry-level uncertainty has a negative effect on the investment of focused firms but has no statistically significant effect on the investment of conglomerate segments. An average conglomerate firm transfers resources from low-uncertainty segments to high-uncertainty segments. The excess value of conglomerate firms relative to focused firms is increasing in uncertainty, especially when the firms are subject to financial frictions. Overall, this study highlights that corporate diversification may improve the efficiency of capital investment decisions under uncertainty.
Other Work (Prior to Ph.D.)
Audit Committees, Corporate Governance, and Shareholder Wealth: Evidence from Korea (with Yoon K. Choi and Seung Hun Han)
Journal of Accounting and Public Policy, 2014, Vol. 33, 470-489.
Information Asymmetry, Corporate Governance, and Shareholder Wealth: Evidence from Unfaithful Disclosures of Korean Listed Firms (with Seung Hun Han, Minhee Kim, and Dukhee Lee)
Asia-Pacific Journal of Financial Studies, 2014, Vol. 43, 690-720.