Institutional Ownership and M&A Performance

During this master thesis, the relationship between institutional investors and the M&A performance of their holdings is analyzed. Many previous studies find that larger shareholders, especially institutional investors are getting actively engaged in the companies they are holding and influence managerial decisions and outcomes. The research question is whether and how much mutual funds influence their holdings during mergers and acquisitions. More precisely, the causality of the influence is questioned. Nain and Yao (2013) find evidence that mutual funds do not use their accumulated shares to influence the management but rather that institutions are better at selecting superior acquirers for their portfolios which subsequently undertake better M&A deals. Furthermore, Kempf, Manconi and Spalt (2017) find that fund managers achieve abnormal returns in those industries in which they gained more experience in the past. Thus, this thesis analyzes whether acquirers which are held by highly skilled and experienced fund managers achieve higher returns around the announcement of a merger. A second analysis deals with reputational arguments and whether the market values the fact that larger funds and fund families are holding an acquirer. The public might perceive the presence of investment firms like Fidelity or BlackRock among the acquirer’s shareholders as a quality signal and reacts more positively to the announcement of a merger by a company which is held by larger fund families. In order to test these hypotheses, cross-sectional multivariate analyses are conducted which regress the mergers’ announcement returns onto the variables of interest: the fund managers’ skill, experience and the funds’ sizes. The models also control for other factors which are cited in the literature as being influential for the outcome of a merger. The results do not support the hypothesis that highly skilled or more experienced fund managers are able to select superior acquirers as none of the various regressions reveal a significant positive influence of those factors on the M&A performance. The analyses regarding the size of the institutions, on the other hand, do show a positive impact on the announcement returns. However, the significant results do not occur on the fund family level but only on the individual fund level. Acquirers which are held by larger funds experience higher returns with the announcement of their mergers.