Market reaction to M&A announcements by state-owned enterprises : an empirical analysis of the market’s reaction when state-owned enterprises announce a merger or acquisition.
Abstract
In this thesis, we analyse implications of corporate state ownership. We use the
Norwegian corporate state ownership as a basis for this analysis. One of the main
problems regarding corporate state ownership is that the state participates in the market
that it regulates and legislates. To circumvent this problem, the Norwegian State
through the Government acts as an owner with a greater distance to the management
of their firms by refraining from holding seats on the board of directors. Along with
this refrainment and the Government’s declared policies on ownership involvement,
we argue that they act as a passive owner. Based on previous studies on ownership
involvement, we hypothesize that the market values the decisions made by managers
in state-owned enterprises (SOEs) more negatively than those of private-owned
enterprises (POEs). To test this hypothesis, we analyse announcement returns to merger
and acquisitions (M&As). The abnormal return surrounding the announcement reflects
how the market values these decisions because M&A is one of the largest investment
decisions that a firm can make. We find significant evidence that announcement return
is lower for SOEs compared to POEs. After finding this difference, we hypothesize that
an explanation for this lower announcement return can be related to a greater extent of
managerial agency problems in SOEs because of the Government’s policies on
ownership involvement. We further hypothesize that this leads to managers of SOEs
engaging in acquisitions that are motivated by their self-interest. We find that it is
difficult to conclude whether or not there is evidence of managerial agency problems
to a further extent in SOEs compared to POEs.