تاثیرات ثروت سهامداران اقلیت و توسعه بازار سهام: شواهدی از افزایش در مالکیت M&A ها

This paper examines, using a global M&A data set, the relationship between the target firm’s minority shareholders’ returns and a country’s stock market development in deals in which large shareholders increase their ownership stakes. For the purpose of this study, we use two measures of stock market development: (1) turnover over GDP, and (2) turnover over market capitalization. We provide evidence supporting the view that minority shareholders in target firms gain significantly more in countries with high stock market development than their counterparts in less-developed markets. Our results are robust to several firm and deal characteristics and provide evidence to policy makers that the degree of stock market development is a key determinant in improving minority shareholders’ welfare.

Several studies have provided evidence that the positive reaction of the target firm’s stock price to a takeover announcement is a global phenomenon.1 Recent evidence also documents that large shareholders are very common worldwide, especially in countries with relatively less-developed stock markets (La Porta et al., 1999, Faccio and Lang, 2002 and Claessens et al., 2000). While acquirers usually own no or very few shares in target firms before the acquisition announcement (Betton et al., 2009), there are cases in which the acquirer not only owns a sizable stake in the target firm but is the firm’s controlling shareholder (Bae et al., 2002 and Holmen and Knopf, 2004). Bates et al. (2006) find that minority shareholders are still able to exercise significant bargaining power and obtain a decent return in US freeze-out bids, even if there is no change of control at stake.2 However, this cannot be ruled as a universal phenomenon given the different degree of countries’ stock market development (La Porta et al., 1997).3 Hence, in this paper, we examine the relationship between the target firm’s minority shareholders’ returns and stock market development in deals in which controlling shareholders increase their ownership stakes. To examine the gains earned by minority shareholders across the world, we focus on merger and acquisition (M&A) deals in which controlling shareholders acquire all or some of the remaining minority shareholdings in listed companies they already control. Throughout the paper, we define these deals as increase-in-ownership transactions. In contrast to acquisition proposals made by unrelated parties, target minority investors in increase-in-ownership M&As are less likely to be endangered by entrenched managers willing to fight off offers, but they are clearly at a disadvantage against a bidder who already controls the company ( Shleifer and Vishny, 1997). Controlling shareholders often claim that their increase-in-ownership transactions are necessary to restructure their individual portfolios or business groups and that such deals are value-increasing projects. Even if the bidder already controls the target firm, it often needs greater or even full control to exploit synergies and reduce costs.4 For example, in increase-in-ownership deals aimed at delisting target firms, the delisting of the target permits the controlling firm to save on the cost of compliance with the securities laws (Carney, 2006).5 Moreover, many controlling shareholders believe that dealing with minority shareholders may prevent their companies from quickly responding to competitive pressures.6 Large shareholders sometimes increase their ownership stake to prevent block creation by other shareholders, who may be hostile (Jenkinson and Ljungqvist, 2001). Finally, there could be cases in which minority shareholders, lacking a liquid market in which to trade their shares,7 demand and put pressure on the large shareholders to buy them out.8 Using an exhaustive sample of 1174 increase-in-ownership acquisitions across 46 countries over the period 1989–2005, we provide evidence that increase-in-ownership transactions do create considerable value for target shareholders. Consistent with Bates et al. (2006), minority shareholders in target firms earn an average announcement excess return of 11.95% in the 5-day period around the acquisition announcement (−2, +2). However, when we partition the sample at the country level, we find a significant variation in the abnormal returns around the acquisition announcement. Thus, these deals provide an ideal testing ground for exploring the reasons why minority shareholders obtain a relatively larger premium. Previous literature suggests that a different degree of investor protection may be the reason for these differences in bidders’ behavior when they already control the target firm. The legal approach to corporate governance proposed by La Porta et al., 1997 and La Porta et al., 1998 emphasizes the role played by the legal system, including both laws and their enforcement, in protecting outside investors (La Porta et al., 2000). La Porta et al., 1997, La Porta et al., 1998 and La Porta et al., 2000 also report that protection of outside investors is positively correlated with stock market development and find that common law countries have both the strongest protection for outside investors and the most developed markets. Though investor protection and stock market development are closely related, the latter captures issues beyond investor protection. Rajan and Zingales (2003) argue that investor protection alone cannot explain the reversals in a country’s financial development and the fact that stock market development indicators are time-varying. In their view, the strength of political forces in favor of financial development plays a key role in developing strong financial markets, and the country’s financial development is the outcome of ideology and the economic interests of voters and pressure groups (Aganin and Volpin, 2005). Indeed, Rajan and Zingales (2003) argue that government action can either foster or hamper the stock market, depending upon the balance of powers between pressure groups. Another important side of stock market development not fully captured by investor protection is market openness. Rajan and Zingales (2003) also discuss the role of a country’s openness to trade and capital flows in promoting financial development. However, such promotion can take place without conceding too much power to minority investors. In fact, Aganin and Volpin (2005) provide the example of Italy, a relatively open market with poor investor protection. Finally, Guiso et al. (2008) argue that trust affects participation in the stock market, and thus its development. Generally, in countries with well-developed stock markets, a significant fraction of the country’s population owns stock (Pagano and Volpin, 2006). Larger participation of investors in firms’ equity serves as a guarantee of exposure to the media in cases of outrageous expropriations by controlling shareholders (Miller, 2006). This is certainly not the case in countries with less-developed markets, where violations often go unnoticed, barring active lobbying by foreign funds in the international press (Dyck et al., 2008). Given these considerations, we argue that stock market development, which summarizes and incorporates the impacts of the determinants mentioned above, is an important driving force of the returns realized by target shareholders around increase-in-ownership acquisitions. This effect captures sides beyond investor protection. In this paper, we employ two measures of stock market development used in the financial and economic development literature (Levine and Zervos, 1998) to test its impact on the abnormal return earned by target shareholders around increase-in-ownership acquisition announcements: (1) turnover over GDP, and (2) turnover over market capitalization. These two measures capture trading activity, or to put it differently, actual participation in the stock market. For the purpose of this study, they are both superior to the ratio between stock market capitalization and the country’s GDP for two main reasons. First, market capitalization includes the value of the large shareholder’s blocks that in general trade infrequently, particularly when they are owned by families or individuals (Holderness and Sheehan, 1988 and Klasa, 2007).9 These blocks represent a large proportion of a country’s market capitalization, especially outside of the US (La Porta et al., 1999, Faccio and Lang, 2002 and Claessens et al., 2000). Second, as argued by Rajan and Zingales (2003), large increases in the value of a few companies can affect stock market capitalization even if few people are trading and few firms are raising equity in this market. We find that target minority shareholders gain significantly more in developed markets than in less financially developed countries. The return differential ranges from 4.75% to 10.38% and is statistically significant for the two proxies of stock market development. The multivariate analysis confirms this result and provides further evidence of the strongly significant positive relationship between target shareholders’ returns and the country’s stock market development. The results are robust after controlling for several deal- and firm-specific characteristics as well as different event windows.10 This paper makes several contributions to the literature. First, it provides evidence of the strong positive relationship between stock market development and target firm minority shareholders’ wealth effects. This indicates that an active and more developed stock market favors minority shareholders, as reflected in the significant gains earned around the acquisition announcement even in transactions with no change of control. Second, it carries out the first worldwide analysis of increase-in-ownership M&A deals, thus illustrating the cross-country determinants of target returns. Finally, the evidence that minority shareholders benefit from developed stock markets has useful implications for policymakers and shows the importance of a developed stock market in disciplining the behavior of large shareholders. We structure the remainder of the paper as follows: Section 2 presents the measures of stock market development, the data, and sample characteristics. Section 3 reports the results of the empirical analysis, and Section 4 discusses the forms of the deals and the underlying motivations. Section 5 discusses and presents robustness tests. Finally, Section 6 provides the conclusions.

This paper investigates the relationship between stock market development and announcement returns to target firm’s minority shareholders in increase-in-ownership acquisitions. The evidence supports the view that target firms’ shareholders do not enjoy the same privileges everywhere. While on average positive, abnormal returns differ greatly across countries, and the level of stock market development appears to play a significant role in driving targets’ returns. We use a global sample of 46 countries, which includes 1174 such deals, and we measure stock market development based on two alternative proxies: turnover over GDP and turnover over market capitalization. Our findings indicate that, when the company’s controlling shareholders engage in increase-in-ownership acquisitions, minority shareholders greatly benefit from the country’s stock market development. These results hold when we control for several deal and target characteristics and have implications for policymakers. One of the policymakers’ top priorities should be to improve stock market participation and increase market liquidity – i.e., develop an efficient stock market. In fact, our results document that a developed stock market serves as an effective disciplinary mechanism even for a bidder that already controls the target company.