Discussion of Separation of ownership from Control and Acquiring Firm Performance:

This article provide interesting and important new evidence relevant to the interpretation of the bidder’s abnormal return observed on the announcement date of mergers and acquisition and to the previously documented hypotheses that the separation of control and ownership result in value-destroying mergers and acquisitions as families use takeover to extract private benefits at the expense of minority shareholders.
Theoretical background
àTraditional paradigm in financial economics – agent are fully rational
à Mergers and acquisition are value maximizing decision and that the benefits from such decision should accrue to both the target and the bidder shareholder
à Study based on the long term performance report negative cumulative abnormal return up to 5 years following successful acquisition
à in Canada firm are closely-held mostly by families
à in particular, family ownership mitigates the agency conflicts as families are long-term investor, and thus take a long term view of the firm and they are concerned with the wealth transfer to the next generation.
The data and the methodology
à The Author use the event study methodology to estimate the announcement date abnormal return
Empirical evidence
à use a set of variables to control for the bidder’s ownership structure, the board characteristic, and cross-listing and set of other variables to control for the relative size of the target, its listing and cross-listing statues, the payment method, and for whether the target is in the same industry as the bidder.
àlarger company are likely to have larger boards, suggesting that the non-family companies are likely to be larger than the family firm.
à Family controlled firms are smaller than the controlled firm; they are more likely to rely on internal financing to finance their acquisitions
à Non-family firms are likely to use cash to finance their acquisitions because they can issue equity or bonds
Conclusion
“while the theoretically background on ownership structure is relatively well detailed, I find less argument relating to the various issues detailed in the literature on mergers and acquisition”