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Vote Avoidance and Shareholder Voting in Mergers and Acquisitions

Journal(s): The Review of Financial Studies
Published: June 8, 2018
Author(s): Kai Li, Tingting Liu, Juan (Julie) Wu

General Description
Dr. Julie Wu, assistant professor of finance, investigates the function of acquirer shareholder voting during mergers and acquisitions. This study shows acquirers with low institutional ownership, high deal risk and high agency costs are more likely to bypass shareholder voting, leading to lower announcement returns and higher offers. To avoid shareholder voting, acquirers increase equity issuance and cut payout in the year before the merger. Wu and her co-authors also document a positive causal effect of shareholder voting concentrated among acquirers with higher institutional ownership. The authors conclude institutional monitoring adds value and mitigates agency issues in mergers and acquisitions.

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Academic Abstract
We examine whether, how, and why acquirer shareholder voting matters. We show that acquirers with low institutional ownership, high deal risk, and high agency costs are more likely to bypass shareholder voting. Such acquirers have lower announcement returns and make higher offers than those who do not. To avoid a shareholder vote, acquirers increase equity issuance and cut payouts to raise the portion of cash in mixed-payment deals. Employing a regression discontinuity design, we show a positive effect on acquirer announcement returns concentrated in acquirers with higher institutional ownership. We conclude that shareholder voting mitigates agency problems in corporate acquisitions.

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