428 QUXIAN ZHANG This dissertation studies how financial frictions and regulatory costs affect mergers and acquisitions (M&A). The first conclusion is that financial distress drives firms to make diversifying acquisitions. Acquisitions made by distressed firms in recent years are economically important. Exploiting a natural experiment, Financing and Regulatory this thesis identifies the causal link between financial distress and acquisitions. The evidence shows that distressed firms acquire to diversify bankruptcy risk, rather than to capture external growth opportunities Frictions in Mergers and and revive growth. The second conclusion of the dissertation is that political connections of banks Q affect the government auctions of distressed banks during the Great Recession. Lobbying financial U X regulators significantly increases a bidding bank’s probability of winning. The post-acquisition operating IA Acquisitions performance is worse for lobbying acquirers than for their non-lobbying counterparts, suggesting that N lobbying results in a less efficient allocation of failed banks. The results provide new insights into the bank Z resolution process and its political economy. Thirdly, the dissertation shows that the regulatory review H process for M&As poses significant costs and risk for merging firms. An adverse antitrust review outcome A N reduces shareholder wealth and the probability of deal success. Mitigating such risk via lobbying may G banennoefiutn scheamreehnot.l dTehres .r Cesounltssis hteignhtllyig, hatc qthueir erorsle s otrfa pteogliitcicalalyl caodnjunset clotiobbnys ining c eoxrppeonradtietu irnevse asrtomuenndt st huen dmeer rger - F regulatory uncertainty. in a n c in g The Erasmus Research Institute of Management (ERIM) is the Research School (Onderzoekschool) in a the field of management of the Erasmus University Rotterdam. The founding participants of ERIM are the n d Rotterdam School of Management (RSM), and the Erasmus School of Economics (ESE). ERIM was founded R in 1999 and is officially accredited by the Royal Netherlands Academy of Arts and Sciences (KNAW). The e g research undertaken by ERIM is focused on the management of the firm in its environment, its intra- and u interfirm relations, and its business processes in their interdependent connections. la t The objective of ERIM is to carry out first rate research in management, and to offer an advanced doctoral o r programme in Research in Management. Within ERIM, over three hundred senior researchers and PhD y candidates are active in the different research programmes. From a variety of academic backgrounds and Fr expertises, the ERIM community is united in striving for excellence and working at the forefront of creating ic t new business knowledge. io n s in M e r g e r s a n d A c q u is it io n S ERIM PhD Series Research in Management Erasmus University Rotterdam (EUR) Erasmus Research Institute of Management Mandeville (T) Building Burgemeester Oudlaan 50 3062 PA Rotterdam, The Netherlands P.O. Box 1738 3000 DR Rotterdam, The Netherlands T +31 10 408 1182 E [email protected] W www.erim.eur.nl Financing and Regulatory Frictions in Mergers and Acquisitions Financing and Regulatory Frictions in Mergers and Acquisitions Fricties in Financiering en Regelgeving bij Fusies en Overnames Thesis to obtain the degree of Doctor from the Erasmus University Rotterdam by the command of rector magnificus Prof.dr. H.A.P. Pols and in accordance with the decision of the Doctorate Board. The public defense shall be held on 11 January 2018 at 13:30 hrs by Quxian Zhang born in Hunan, China Doctoral Committee Doctoral dissertation supervisor: Prof.dr. P.G.J. Roosenboom Other members: Prof.dr. W.B. Wagner (Secretary) Prof.dr. P. Verwijmeren Prof.dr. D.L. Yermack Co-supervisor: Prof.dr. A. de Jong Erasmus Research Institute of Management – ERIM ThejointresearchinstituteoftheRotterdamSchoolofManagement(RSM) andtheErasmusSchoolofEconomics(ESE)attheErasmusUniversityRotterdam Internet: http://www.erim.eur.nl ERIM Electronic Series Portal: http://repub.eur.nl/ ERIM PhD Series in Research in Management,428 ERIMreferencenumber: EPS-2018-428-F&A ISBN978-90-5892-505-3 ©2018,QuxianZhang Design: PanArt,www.panart.nl Thispublication(coverandinterior)isprintedbyTuijtelonrecycledpaper,BalanceSilk®. Theinkusedisproducedfromrenewableresourcesandalcoholfreefountainsolution. Certificationsforthepaperandtheprintingproductionprocess: Recycle,EUEcolabel, FSC®,ISO14001. Moreinfo: www.tuijtel.com Allrightsreserved. Nopartofthispublicationmaybereproducedortransmittedinany form or by any means electronic or mechanical, including photocopying, recording, or byanyinformationstorageandretrievalsystem,withoutpermissioninwritingfromthe author. For my mother Acknowledgments i Acknowledgments I am deeply indebted to many people who have supported me over the years. I would never be able to come to this point without them. Firstofall,IwouldliketothankmyPhDsupervisorandpromoter,PeterRoosen- boom,whohasofferedmetremendoussupportandguidanceandunreservedlybacked me throughout my entire PhD study. Peter put me on the right track of doing re- searchandofferedhiswisdomalongtheway. Hehastaughtmeaprofessionalattitude toward research and work and a structured approach to conduct research projects. His door is always open to me whenever I have encountered difficulties in research or in life. I would also like to thank other members of my inner dissertation committee— Abe de Jong, David Yermack, Wolf Wagner, and Patrick Verwijmeren. I have been fortunatetohavethemasmentorsduringmyPhDstudy. Theyhaveprovidedhelpful advice on my papers and offered their priceless support during my job-search year. I have received from them the most insightful and informative conversations on both research and academic career. I am also immensely grateful to other members of my dissertation committee—Mathijs van Dijk, Sebastian Gryglewicz, and Herbert Rijken—for their kind help during my PhD study and feedback on my thesis. My sincere thanks also go to my co-authors—Thomas Lambert, Jana Fidrmuc, andDenizIgan—fortheirknowledge,motivation,andpatiencewitharookielikeme. It is my great pleasure and honor to work with exceptional researchers like them. In particular, I am grateful to Thomas for selflessly sharing with me his valuable experience and enlightening me on research and academic life. I have been very lucky to work with a group of supportive and considerate col- leagues. I would like to express my appreciation and thanks to Mark van Achter, Aleksandar Andonov, Sjoerd van Bekkum, Dion Bongaerts, Hoyong Choi, Mathijs Cosemans, Sarah Draus, Mintra Dwarkasing, Marc Gabarro, Ying Gan, Egemen ii Acknowledgments Genc, Stefan van Kampen, Yigitcan Karabulut, Melissa Lin, Stefan Obernberger, Marieke van der Poel, Anjana Rajamani, Frederik Schlingemann, Claus Schmitt, Fabrrizio Spargoli, Marta Szymanowska, Francisco Urzua Infante, Yan Wang, and Ran Xing for their priceless support, especially in helping me with my job market paperandinterviewpreparation. Thehelpfromourdepartmentsecretarieswasalso incredible. I would like to extend my appreciation and gratitude to Myra and Flora for doing such an excellent job at work and being good friends. Kim and Miho from ERIMPhDofficealsoprovidedexcellentsupporttomakethisthesispossible. Also,I thank my fellow PhD cohorts including Aleks, Darya, Gelly, Jose, Lingtian, Marina, Philips,Pooyan,Rex,Rogier,Roy,Ruben,Romulo,Shuo,Teng,Teodor,Vlado,Xiao Xiao, Yingjie, and Yuhao for the pleasant time and inspiring conversations that we have had together. Last but not the least, I would like to thank my friends and family: Michelle and Jingyunforbeingfaithfulandlong-standingfriends; Mikeforhisthoughtfulnessand company;mydadandmysisterforalwaysstandingbyme;andmymumforinspiring me to become a researcher in my childhood. It is their heartening encouragement that has brought me to where I stand now. Eden Zhang 张曲弦 Melbourne August 2017
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