IDEAS home Printed from https://ideas.repec.org/a/fau/fauart/v67y2017i5p423-438.html
   My bibliography  Save this article

Self-selection Bias and the Listing Status of Target Firms: Value Effects in the Spanish Market

Author

Listed:
  • Jose E. Farinos

    (University of Valencia, Department of Corporate Finance, Faculty of Economics, Valencia, Spain)

  • Begona Herrero

    (University of Valencia, Department of Corporate Finance, Faculty of Economics, Valencia, Spain)

  • Miguel A. Latorre

    (Catholic University of Valencia “San Vicente Mártir”, Department of Accounting, Finance and Management Control, Faculty of Economics and Business, Valencia, Spain)

Abstract

As corporate announcement decisions are non–random events, standard OLS estimations must be corrected for the self–selection bias. In the M&A field several studies suggest that previous evidence on univariate analysis of abnormal returns is not fully reliable. We examine whether using the standard Heckman two–step estimation procedure to correct for endogeneity significantly changes the previous evidence with respect to the decision to acquire a listed versus an unlisted firm. Our results show that this correction does not change the conclusions drawn from unconditional abnormal returns. Therefore, we emphasize that the existence of self–selection bias should not mean a general invalidation of the previous evidence.

Suggested Citation

  • Jose E. Farinos & Begona Herrero & Miguel A. Latorre, 2017. "Self-selection Bias and the Listing Status of Target Firms: Value Effects in the Spanish Market," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(5), pages 423-438, October.
  • Handle: RePEc:fau:fauart:v:67:y:2017:i:5:p:423-438
    as

    Download full text from publisher

    File URL: http://journal.fsv.cuni.cz/storage/1395_423_-_438_farinos_final_issue_05_2017.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
    2. Marina Martynova & Luc Renneboog, 2011. "The Performance of the European Market for Corporate Control: Evidence from the Fifth Takeover Wave," European Financial Management, European Financial Management Association, vol. 17(2), pages 208-259, March.
    3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Laurence Capron & Jung‐Chin Shen, 2007. "Acquisitions of private vs. public firms: Private information, target selection, and acquirer returns," Strategic Management Journal, Wiley Blackwell, vol. 28(9), pages 891-911, September.
    6. Officer, Micah S., 2007. "The price of corporate liquidity: Acquisition discounts for unlisted targets," Journal of Financial Economics, Elsevier, vol. 83(3), pages 571-598, March.
    7. Faccio, Mara & McConnell, John J. & Stolin, David, 2006. "Returns to Acquirers of Listed and Unlisted Targets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(1), pages 197-220, March.
    8. James S. Ang & Rebel A. Cole & James Wuh Lin, 2000. "Agency Costs and Ownership Structure," Journal of Finance, American Finance Association, vol. 55(1), pages 81-106, February.
    9. Balakrishnan, Srinivasan & Koza, Mitchell P., 1993. "Information asymmetry, adverse selection and joint-ventures : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 20(1), pages 99-117, January.
    10. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    11. Walter Novaes, 2003. "Capital Structure Choice When Managers Are in Control: Entrenchment versus Efficiency," The Journal of Business, University of Chicago Press, vol. 76(1), pages 49-82, January.
    12. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    13. Becchetti, Leonardo & Trovato, Giovanni, 2002. "The Determinants of Growth for Small and Medium Sized Firms: The Role of the Availability of External Finance," Small Business Economics, Springer, vol. 19(4), pages 291-306, December.
    14. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    15. Reuer, Jeffrey J. & Ragozzino, Roberto, 2008. "Adverse selection and M&A design: The roles of alliances and IPOs," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 195-212, May.
    16. Shams, Syed M.M. & Gunasekarage, Abeyratna & Colombage, Sisira R.N., 2013. "Does the organisational form of the target influence market reaction to acquisition announcements? Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 89-108.
    17. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    18. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    19. Moeller, Sara B. & Schlingemann, Frederik P., 2005. "Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 533-564, March.
    20. Micah S. Officer & Annette B. Poulsen & Mike Stegemoller, 2009. "Target-firm information asymmetry and acquirer returns," Review of Finance, European Finance Association, vol. 13(3), pages 467-493.
    21. Saeyoung Chang, 1998. "Takeovers of Privately Held Targets, Methods of Payment, and Bidder Returns," Journal of Finance, American Finance Association, vol. 53(2), pages 773-784, April.
    22. Petmezas, Dimitris, 2009. "What drives acquisitions?: Market valuations and bidder performance," Journal of Multinational Financial Management, Elsevier, vol. 19(1), pages 54-74, February.
    23. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    24. Moschieri, Caterina & Campa, José Manuel, 2014. "New trends in mergers and acquisitions: Idiosyncrasies of the European market," Journal of Business Research, Elsevier, vol. 67(7), pages 1478-1485.
    25. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    26. Shimizu, Katsuhiko & Hitt, Michael A. & Vaidyanath, Deepa & Pisano, Vincenzo, 2004. "Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future," Journal of International Management, Elsevier, vol. 10(3), pages 307-353.
    27. John Koeplin & Atulya Sarin & Alan C. Shapiro, 2000. "The Private Company Discount," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(4), pages 94-101, January.
    28. J. Myles Shaver, 1998. "Accounting for Endogeneity When Assessing Strategy Performance: Does Entry Mode Choice Affect FDI Survival?," Management Science, INFORMS, vol. 44(4), pages 571-585, April.
    29. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    30. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    31. Paul Draper & Krishna Paudyal, 2006. "Acquisitions: Private versus Public," European Financial Management, European Financial Management Association, vol. 12(1), pages 57-80, January.
    32. Miguel A. Latorre & Bego�a Herrero & Jos� E. Farin�s, 2014. "Do acquirers' stock prices fully react to the acquisition announcement of listed versus unlisted target firms? Out-of-sample evidence from Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 21(15), pages 1075-1078, October.
    33. Asquith, Paul & Bruner, Robert F. & Mullins, David Jr., 1983. "The gains to bidding firms from merger," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 121-139, April.
    34. Bae, Sung C. & Chang, Kiyoung & Kim, Doseong, 2013. "Determinants of target selection and acquirer returns: Evidence from cross-border acquisitions," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 552-565.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. José Emilio Farinós & Begoña Herrero & Miguel Ángel Latorre, 2021. "Investor Inattention to All-Cash Acquisition Announcements: A Joint Day-Time Analysis in the Spanish Market," Sustainability, MDPI, vol. 13(2), pages 1-22, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Feito-Ruiz, Isabel & Menéndez-Requejo, Susana, 2011. "Cross-border Mergers and Acquisitions in different legal environments," International Review of Law and Economics, Elsevier, vol. 31(3), pages 169-187, September.
    2. Yousry Ahmed & Tamer Elshandidy, 2021. "Effect of leverage deviation on choices and outcomes of public versus non‐public acquisitions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3436-3459, July.
    3. Robert W. Faff & Abeyratna Gunasekarage & Syed M. M. Shams, 2020. "Does takeover competition affect acquisition choices and bidding firm performance? Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3581-3619, December.
    4. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    5. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.
    6. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    7. Bae, Sung C. & Chang, Kiyoung & Kim, Doseong, 2013. "Determinants of target selection and acquirer returns: Evidence from cross-border acquisitions," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 552-565.
    8. Leonidas G. Barbopoulos & Jo Danbolt, 2021. "The real effects of earnout contracts in M&As," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(3), pages 607-639, September.
    9. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    10. Feito-Ruiz, Isabel & Renneboog, Luc, 2017. "Takeovers and (excess) CEO compensation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 156-181.
    11. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    12. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    13. Barbopoulos, Leonidas & Sudarsanam, Sudi, 2012. "Determinants of earnout as acquisition payment currency and bidder’s value gains," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 678-694.
    14. Mateev, Miroslav, 2017. "Is the M&A announcement effect different across Europe? More evidences from continental Europe and the UK," Research in International Business and Finance, Elsevier, vol. 40(C), pages 190-216.
    15. Jory, Surendranath R. & Ngo, Thanh N., 2015. "The wealth effects of acquiring foreign divested assets," International Business Review, Elsevier, vol. 24(2), pages 235-245.
    16. Shams, Syed, 2021. "Competition in the acquisition market and returns to bidders in Australia," Research in International Business and Finance, Elsevier, vol. 55(C).
    17. Perafán-Peña, Héctor Fabio & Gill-de-Albornoz, Belén & Giner, Begoña, 2022. "Earnings management of target firms and deal premiums: The role of industry relatedness," The British Accounting Review, Elsevier, vol. 54(2).
    18. John A. Doukas & Dimitris Petmezas, 2007. "Acquisitions, Overconfident Managers and Self‐attribution Bias," European Financial Management, European Financial Management Association, vol. 13(3), pages 531-577, June.
    19. Aktas, Nihat & Cousin, Jean-Gabriel & Ozdakak, Ali & Zhang, Junyao, 2016. "Industry IPOs, growth opportunities, and private target acquisitions," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 193-209.
    20. Bayar, Onur & Das, Sougata & Kesici, Emre, 2021. "Heterogeneity in the information content of 8-K disclosures about private targets: Acquirer size and target significance," Global Finance Journal, Elsevier, vol. 48(C).

    More about this item

    Keywords

    sample selection bias; private targets; public targets; value creation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fau:fauart:v:67:y:2017:i:5:p:423-438. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/icunicz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Natalie Svarcova (email available below). General contact details of provider: https://edirc.repec.org/data/icunicz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.