dc.description.abstract | This thesis studies the relationship between ownership concentration and
acquiring firm M&A announcement returns. In agency literature, ownership
concentration has been proposed as an effective governance mechanism. The
main benefit of ownership concentration is improved corporate performance due
to monitoring and intervention by large shareholders. However, large
shareholders may impose costs if they act only in their self-interest. The net
effect of ownership concentration is therefore unclear. While there are several
studies that analyse the effect of ownership concentration on operating
performance and valuation, to my knowledge, no previous study has examined
its effect on acquiring firm M&A announcement returns. M&A announcements
present a unique opportunity to examine the effect of ownership concentration as
M&A’s intensify the agency costs between managers and shareholders, and the
valuation effects are easily observable.
Using an event study, I analyse a sample of 373 completed acquisitions by
Norwegian public companies from 1997 through 2016. Different levels of
ownership concentration are taken into consideration as the fraction of shares
owned by the largest shareholder may affect the result. I find evidence of an
insignificant relationship between large minority shareholders (shareholders that
own more than 20% and less than 50% of firm’s share) and acquiring firm
announcement returns, and a significantly negative relationship between
controlling majority shareholders (shareholders that own more than 50% of a
firm’s share) and acquiring firm announcement returns. The results indicate that
extreme ownership concentration due to controlling majority shareholders is
associated with a negative effect on acquiring firm announcement returns. To test
if the negative relationship is related to the type of owner, I compare private
controlling owners (active owners) with the state (passive owner). The results of
this test indicate that there is no difference in announcement returns when the
controlling majority owner is a private owner or the state. Overall, the results
raise the question as to whether there are benefits of ownership concentration and
I conclude that the negative relationship is a result of inadequate monitoring by
self-serving, controlling owners.
Note: The terms “bidder” and “acquirer” are used interchangeably. | en_US |