افق های سرمایه گذاری سهامداران و بازار برای کنترل شرکت های بزرگ

This paper investigates how the investment horizon of a firm's institutional shareholders impacts the market for corporate control. We find that target firms with short-term shareholders are more likely to receive an acquisition bid but get lower premiums. This effect is robust and economically significant: Targets whose shareholders hold their stocks for less four months, one standard deviation away from the average holding period of 15 months, exhibit a lower premium by 3%. In addition, we find that bidder firms with short-term shareholders experience significantly worse abnormal returns around the merger announcement, as well as higher long-run underperformance. These findings suggest that firms held by short-term investors have a weaker bargaining position in acquisitions. Weaker monitoring from short-term shareholders could allow managers to proceed with value-reducing acquisitions or to bargain for personal benefits (e.g., job security, empire building) at the expense of shareholder returns.

This paper is an empirical analysis of the impact of shareholder investment horizons on the market for corporate control. Our purpose is to investigate the claim that the U.S. corporate governance system myopically puts too much emphasis on the short term, leading to distorted investment decisions.1 Mergers and acquisitions (M&As) are a good setting to study the influence of shareholder investment horizons on corporate decision making. An acquisition is an important investment decision likely to impact the shareholder value of the bidding firm. Receiving an acquisition offer is often a direct source of sizable gains for target firm shareholders. In addition, unsolicited acquisitions provide indirect gains by disciplining managerial actions ex ante (Jensen, 1993). Investment horizons, as many other shareholder characteristics, are naturally hard to observe. The availability of data on institutional holdings provides a unique opportunity to infer investment horizon from actual portfolio behavior. Institutions constitute the biggest investor group in the U.S. equity markets and are usually portrayed as a pivotal investor group in takeovers (Useem, 1996). They are also investors whose portfolio policies are important, well defined, and professionally set up. Previous research has investigated the role played in acquisitions by different classes of shareholders (e.g., managers, institutions, blockholders) but has not addressed investment horizon per se. Institutional investors have different portfolio horizons for many reasons. Different demographics or liquidity needs of final owners can imply strategies with different horizons. For example, employee-defined contribution plans usually have a long-term orientation, while retail open-ended mutual funds tend to be more short-term oriented because of frequent money inflows and outflows (Edelen, 1999). Agency problems inherent in delegated asset management also affect investment horizons. Shorter horizons could result from the inability to continuously gather capital to implement long-term strategies (Shleifer and Vishny, 1997) or from the incentives to trade on short-term signals if there is imperfect information about the portfolio manager's ability (Scharfstein and Stein, 1990; Dow and Gorton, 1997). M&A events are strongly affected by agency problems existing between managers and shareholders. The effectiveness of the monitoring activities that can alleviate these problems depends on the existence of shareholders with enough cash-flow rights and incentives to monitor firm managers effectively.2 Moreover, M&As are characterized by high bargaining costs, mostly because the bidder has to surrender a significant portion of the gains to acquire control. Based on this theoretical background, we suggest two interrelated channels through which shareholder investment horizons influence the outcome of M&A events. First, we expect investment horizons to affect the degree to which firm managers are monitored. Investors with a shorter horizon have fewer incentives to spend resources in monitoring, as they are less likely to remain shareholders of the firm long enough to reap the corresponding benefits. In addition, they have less time to learn about the firm. Therefore, the length of the investment horizon of shareholders affects managerial behavior both in initiating corporate control transactions and in merger negotiations. Weakly monitored managers will trade off shareholder interests for personal benefits, ranging from job security (target) to empire building (bidder), at the expense of shareholder returns. Second, shareholder investment horizons affect the bargaining power of each party involved in an acquisition. A deal can create economic surplus that has to be split between the target and the bidder. In a tender offer, shareholders with a short-term orientation have a lower ability to hold out in the negotiation, in the sense identified by Grossman and Hart (1980), when compared with long-term investors who can afford to stay in the firm until all the benefits of the acquisition are realized. In a friendly merger, managers of firms held by short-term shareholders can be expected to have a weaker bargaining position, as a result of higher chances that their shareholders take the “Wall Street walk” and sell their holdings. The two effects, monitoring and bargaining power, are intertwined. Weak monitoring by short-term investors can lead to managers trying to cut a deal for themselves at the expense of shareholder interests at the bargaining table. Our hypothesis predicts that we should observe lower premiums for target firms held by short-term investors, as well as a higher probability of a bid being received. Similarly, we should observe a more negative abnormal return around the merger announcement for bidder firms held by short-term investors, as well as a higher probability of a bid being made. To test these predictions, we build a measure of investor horizon based on the average turnover of investors’ entire portfolios. Short-term investors are defined as those exhibiting high portfolio turnover. We then characterize the ownership structure of a firm prior to an acquisition announcement in terms of its shareholders’ portfolio turnover. Our characterization of the behavior of investors uses a one-year history of filings and is measured six to nine months before the announcement date. We show that the more short-term oriented the target shareholders are (that is, the more frequently they rotate their portfolio), the lower is the target premium. At the same time, the more short-term oriented the bidder shareholders are, the more negative is the bidder abnormal market return around the merger announcement. For example, in the case of target firms, an increase of one standard deviation on the average institutional shareholder level of portfolio turnover (a mere difference of four months from the average 15-month period the firm's investors hold a stock) implies more than a 3% reduction in premium. Our paper also analyzes the impact of investor horizons on the likelihood of a bid and finds that short-term investors facilitate the deal by increasing its probability. Given that investor horizons affect both the likelihood and the premium of a transaction, we investigate whether a problem of sample-selection bias exists. We find that, even after properly accounting for this phenomenon, our variables still exhibit significant statistical power to explain premium levels. Finally, we address the question of whether investor horizons are related to the long-term performance of the merging firms. Acquirers with short-term shareholders prior to the merger are found to underperform significantly (by as much as –0.7% monthly, or –8% per year, over a holding period of three years), compared with acquirers with long-term shareholders. Our findings clearly demonstrate the trade-off implicit in the prevalence of short-horizon ownership structures, thus contributing to the debate on the U.S. corporate governance system. In particular, shareholders’ investment horizons affect the relative affordability of takeovers. The more short term the shareholders of the target are, the higher the likelihood of a takeover and the lower its cost. At the same time, short-term shareholders in the bidder provide more leeway for managers to overbid and carry out value-reducing acquisitions. This trade-off follows the arguments put forward by Jensen (1993). In addition, our findings shed light on the true costs and benefits of pursuing a policy of relationship investing (Kensinger and Martin, 1996; Chidambaran and John, 1999) or shareholder targeting (Useem, 1996). Industry practitioners seem to devote considerable attention to investor horizon considerations, and many firms implement investor relation activities aimed at attracting long-term investors to their shareholder base. Our paper adds to this debate by empirically validating the idea that it does make a difference who the shareholders are. In particular, managers face a trade-off between targeting acquiescent short-term shareholders who are not committed to the company and targeting demanding long-term shareholders who can give them a strong hand at a merger negotiation table. Our paper adds to the stream of literature that investigates the effects of shareholder heterogeneity on stock prices (e.g., Shleifer, 1986; Bagwell, 1991). Hotchkiss and Strickland (2000) find that ownership composition affects stock price behavior around the release of corporate information. Bushee (2001) shows that transient (high turnover and highly diversified) investors are associated with an overweighting of near-term expected earnings. In the context of M&As, Stulz et al. (1990) conclude that higher institutional ownership is associated with lower acquisition premiums. Ambrose and Megginson (1992) do not find a significant impact for the level of ownership on the likelihood of a bid. The remainder of the paper is articulated as follows. Section 2 lays out our main testable hypothesis. Section 3 describes the sample and the variables. Section 4 analyzes the impact of investor horizon on the acquisition premium and on the bidder's short-term stock price performance. Section 5 does the same for the likelihood of the takeover and addresses the issue of sample selection bias. Section 6 investigates the impact of investor horizon on the long-term performance of acquiring companies. A brief conclusion follows.

The attention given to shareholder characteristics in the M&A literature has mostly been restricted to the role played by institutional differences between classes of shareholders (e.g., firm managers, affiliated blockholders, or institutional investors). We focus on differences in investment horizon, and we put forward explanations as to why they are likely to be a major source of variation in the value of a takeover deal. A longer investment horizon of the shareholders implies a higher ability to hold out in the merger negotiation. At the same time, shareholders with longer investment horizon have bigger incentives to monitor. This means that firm managers are less likely to trade off shareholder returns for their own personal benefit. We show that investment horizon affects the affordability of takeovers. Short-term shareholders in the target enhance the likelihood of a takeover and lower its cost. At the same time, short-term shareholders in the bidder give managers more leeway to carry out value-reducing acquisitions. Long-term investors defend management from takeovers (by making bids more expensive) but also prevent overbidding and value-reducing acquisitions. In future work it is worth investigating the impact of shareholder horizons on other aspects of corporate control. Given our findings, we expect that shareholders’ horizon will affect the outcome of other events in which shareholder monitoring and bargaining constitute major features (such as proxy fights, going private transactions, or self-tender offers). At a more general level, it would be interesting to study the determinants of a firm's shareholder base. We believe that long-term capital is scarce, because of the problems discussed in the literature (e.g., the importance of liquidity needs or the distortions of incentives caused by delegated portfolio management). Hence long-term capital cannot have a major presence in all firms. What are the key attributes that attract long-term capital to a company or that persuade existing shareholders to hold their investments for longer periods? This is an open question left for future research.