Academics Win Best Corporate Finance Paper Award 2016
"Institutional Cross-ownership and Corporate Strategy: The Case of Mergers and Acquisitions" by Professor Chris Brooks, Dr Yeqin Zeng, and PhD Zhong Chen has been awarded Best Corporate Finance Paper at the 2016 Southern Finance Association annual conference. About the paper: The paper provides new evidence on the important role of institutional investors in affecting corporate strategy. We study institutional investors who hold stocks of both acquirers and targets before the announcements of mergers and acquisitions (M&As). The existence of these institutional cross-owners not only increases the probability of two firms merging, but also affects the outcomes of M&As. Institutional cross-ownership reduces target firm prices, lowers completion probabilities of deals with negative acquirer announcement returns, and increases the use of stock payment in M&A transactions. Furthermore, deals with high institutional cross-ownership have lower transaction costs and disclose more transparent financial statement information. The effect of cross-ownership on the combined acquirer and target announcement returns is positive, which can be attributed to the independent and non-transient cross-owners. Deals with high cross-ownership are more likely to be non-diversifying and independent institutional cross-ownership is positively related to deal long-run performance. Overall, our results suggest that the growth of institutional cross-holdings in U.S. stock markets may greatly change corporate strategies and decision-making processes.