Financing and Regulatory Frictions in Mergers and Acquisitions

224 Pages·2017·5.66 MB·English

428 QUXIAN ZHANG
This dissertation studies how financial frictions and regulatory costs affect mergers and acquisitions (M&A).
The first conclusion is that financial distress drives firms to make diversifying acquisitions. Acquisitions
made by distressed firms in recent years are economically important. Exploiting a natural experiment, Financing and Regulatory
this thesis identifies the causal link between financial distress and acquisitions. The evidence shows that
distressed firms acquire to diversify bankruptcy risk, rather than to capture external growth opportunities
Frictions in Mergers and
and revive growth. The second conclusion of the dissertation is that political connections of banks Q
affect the government auctions of distressed banks during the Great Recession. Lobbying financial U
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regulators significantly increases a bidding bank’s probability of winning. The post-acquisition operating IA Acquisitions
performance is worse for lobbying acquirers than for their non-lobbying counterparts, suggesting that
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lobbying results in a less efficient allocation of failed banks. The results provide new insights into the bank Z
resolution process and its political economy. Thirdly, the dissertation shows that the regulatory review H
process for M&As poses significant costs and risk for merging firms. An adverse antitrust review outcome A
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reduces shareholder wealth and the probability of deal success. Mitigating such risk via lobbying may G
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the field of management of the Erasmus University Rotterdam. The founding participants of ERIM are the n
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Rotterdam School of Management (RSM), and the Erasmus School of Economics (ESE). ERIM was founded R
in 1999 and is officially accredited by the Royal Netherlands Academy of Arts and Sciences (KNAW). The e
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research undertaken by ERIM is focused on the management of the firm in its environment, its intra- and u
interfirm relations, and its business processes in their interdependent connections. la
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The objective of ERIM is to carry out first rate research in management, and to offer an advanced doctoral o
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programme in Research in Management. Within ERIM, over three hundred senior researchers and PhD y
candidates are active in the different research programmes. From a variety of academic backgrounds and Fr
expertises, the ERIM community is united in striving for excellence and working at the forefront of creating ic
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ERIM PhD Series
Research in Management
Erasmus University Rotterdam (EUR)
Erasmus Research Institute of Management
Mandeville (T) Building
Burgemeester Oudlaan 50
3062 PA Rotterdam, The Netherlands
P.O. Box 1738
3000 DR Rotterdam, The Netherlands
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W www.erim.eur.nl

Financing and Regulatory Frictions
in Mergers and Acquisitions

Financing and Regulatory Frictions
in Mergers and Acquisitions
Fricties in Financiering en Regelgeving
bij Fusies en Overnames
Thesis
to obtain the degree of Doctor from the
Erasmus University Rotterdam
by the command of
rector magnificus
Prof.dr. H.A.P. Pols
and in accordance with the decision of the Doctorate Board.
The public defense shall be held on
11 January 2018 at 13:30 hrs
by
Quxian Zhang
born in Hunan, China
Doctoral Committee
Doctoral dissertation supervisor:
Prof.dr. P.G.J. Roosenboom
Other members:
Prof.dr. W.B. Wagner (Secretary)
Prof.dr. P. Verwijmeren
Prof.dr. D.L. Yermack
Co-supervisor:
Prof.dr. A. de Jong
Erasmus Research Institute of Management – ERIM
ThejointresearchinstituteoftheRotterdamSchoolofManagement(RSM)
andtheErasmusSchoolofEconomics(ESE)attheErasmusUniversityRotterdam
Internet: http://www.erim.eur.nl
ERIM Electronic Series Portal: http://repub.eur.nl/
ERIM PhD Series in Research in Management,428
ERIMreferencenumber: EPS-2018-428-F&A
ISBN978-90-5892-505-3
©2018,QuxianZhang
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For my mother

Acknowledgments i
Acknowledgments
I am deeply indebted to many people who have supported me over the years. I
would never be able to come to this point without them.
Firstofall,IwouldliketothankmyPhDsupervisorandpromoter,PeterRoosen-
boom,whohasofferedmetremendoussupportandguidanceandunreservedlybacked
me throughout my entire PhD study. Peter put me on the right track of doing re-
searchandofferedhiswisdomalongtheway. Hehastaughtmeaprofessionalattitude
toward research and work and a structured approach to conduct research projects.
His door is always open to me whenever I have encountered difficulties in research
or in life.
I would also like to thank other members of my inner dissertation committee—
Abe de Jong, David Yermack, Wolf Wagner, and Patrick Verwijmeren. I have been
fortunatetohavethemasmentorsduringmyPhDstudy. Theyhaveprovidedhelpful
advice on my papers and offered their priceless support during my job-search year. I
have received from them the most insightful and informative conversations on both
research and academic career. I am also immensely grateful to other members of
my dissertation committee—Mathijs van Dijk, Sebastian Gryglewicz, and Herbert
Rijken—for their kind help during my PhD study and feedback on my thesis.
My sincere thanks also go to my co-authors—Thomas Lambert, Jana Fidrmuc,
andDenizIgan—fortheirknowledge,motivation,andpatiencewitharookielikeme.
It is my great pleasure and honor to work with exceptional researchers like them.
In particular, I am grateful to Thomas for selflessly sharing with me his valuable
experience and enlightening me on research and academic life.
I have been very lucky to work with a group of supportive and considerate col-
leagues. I would like to express my appreciation and thanks to Mark van Achter,
Aleksandar Andonov, Sjoerd van Bekkum, Dion Bongaerts, Hoyong Choi, Mathijs
Cosemans, Sarah Draus, Mintra Dwarkasing, Marc Gabarro, Ying Gan, Egemen
ii Acknowledgments
Genc, Stefan van Kampen, Yigitcan Karabulut, Melissa Lin, Stefan Obernberger,
Marieke van der Poel, Anjana Rajamani, Frederik Schlingemann, Claus Schmitt,
Fabrrizio Spargoli, Marta Szymanowska, Francisco Urzua Infante, Yan Wang, and
Ran Xing for their priceless support, especially in helping me with my job market
paperandinterviewpreparation. Thehelpfromourdepartmentsecretarieswasalso
incredible. I would like to extend my appreciation and gratitude to Myra and Flora
for doing such an excellent job at work and being good friends. Kim and Miho from
ERIMPhDofficealsoprovidedexcellentsupporttomakethisthesispossible. Also,I
thank my fellow PhD cohorts including Aleks, Darya, Gelly, Jose, Lingtian, Marina,
Philips,Pooyan,Rex,Rogier,Roy,Ruben,Romulo,Shuo,Teng,Teodor,Vlado,Xiao
Xiao, Yingjie, and Yuhao for the pleasant time and inspiring conversations that we
have had together.
Last but not the least, I would like to thank my friends and family: Michelle and
Jingyunforbeingfaithfulandlong-standingfriends; Mikeforhisthoughtfulnessand
company;mydadandmysisterforalwaysstandingbyme;andmymumforinspiring
me to become a researcher in my childhood. It is their heartening encouragement
that has brought me to where I stand now.
Eden Zhang
张曲弦
Melbourne
August 2017