Value effects through voting block acquisition – an empirical and comprehensive analysis for Germany

Diploma Thesis , 2008 , 48 Pages , Grade: 1,7

Economy - Theory of Competition, Competition Policy

The question if and how the ownership structure influences the market value of a firm is one of the most extensive studied subjects in corporate governance. Three main determinants were identified during more than 30 years of research:
1. The size of the block
2. The legal and regulatory environment
3. The type of blockholder

This work uses the acquisition of voting blocks by different types of acquirers (point 3) to determine how the shareholder structure in Germany (point 2) influences the valuation of a firm. It is demonstrated that the heterogeneity between block acquirers has to be taken into account, i.e. the size of a block (acquisition) itself (point 1) is not a distinctive enough instrument to determine valuation aspects.

The main results are that a block acquisition by banks in Germany results in a negative value effect. A cumulated abnormal return (CAR) of -2.7% in the event-period [-20,20] is the (average) consequence of a block-acquisition by a bank. A strong and highly significant result is the positive valuation effect when hedge funds acquire blocks in their targets. Average cumulated abnormal return is 5% in the period [-20,-1]. Corporations as
block-acquirer cause also positive CAR’s (1%). No significant effects are found following the announcement by mutual funds, insurances and individual investors.

The work proceeds as follows: In chapter 2 the literature on general corporate governance and especially the literature concerned with the relation between shareholder structure and valuation is reviewed. The data for this study and its legal sources is described in chapter 3 and chapter 4 gives a short descriptive statistic. The main chapter, chapter 5, starts with an explanation why the event-study methodology is especially eligible to answer the question of how blockholding influences valuation. Then the used methodology is
described and the results of the empirical work presented. These are put in the context of the respective literature and research. Chapter 6 is a short summary of the most important
findings and concludes the work.

Inhaltsverzeichnis (Table of Contents)

• Introduction
• Corporate Governance, Shareholder Structure and Valuation
• Legal Background and Data
• Descriptive statistic
• Event Study
• Concluding Remark

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This study aims to analyze the impact of voting block acquisitions by different acquirer types on the valuation of firms in Germany. It investigates how shareholder structure influences valuation, specifically focusing on the heterogeneity between block acquirers. The study aims to determine whether the size of a block alone is sufficient to determine valuation aspects or if other factors related to the acquirer type are crucial. Key themes explored in this work include:

• The relationship between corporate governance, shareholder structure, and firm valuation.
• The influence of different acquirer types on valuation, specifically focusing on banks, hedge funds, and corporations.
• The significance of block size in determining valuation effects.
• The application of event study methodology to analyze the impact of block acquisitions on firm valuation.
• The role of legal and regulatory frameworks in shaping the relationship between shareholder structure and valuation.

Zusammenfassung der Kapitel (Chapter Summaries)

Introduction

This chapter introduces the research question of how ownership structure influences firm value, identifying three key determinants: block size, legal environment, and acquirer type. The study focuses on the impact of block acquisition by different types of acquirers in Germany, specifically investigating the influence of shareholder structure on valuation. It highlights the need to consider heterogeneity among block acquirers and proposes that block size alone may not be sufficient to determine valuation effects.

Corporate Governance, Shareholder Structure and Valuation

This chapter provides a comprehensive overview of the existing literature on corporate governance, particularly focusing on the relationship between shareholder structure and firm valuation. It traces the evolution of this research field, starting with Berle and Means's seminal work on the separation of ownership and control. The chapter introduces the concept of agency costs, developed by Jensen and Meckling, and highlights the role of corporate governance mechanisms in reducing information asymmetry and aligning managerial interests with shareholder interests.

Legal Background and Data

This chapter delves into the legal framework surrounding block acquisitions in Germany, providing a foundation for understanding the data used in the study. It outlines the relevant legal provisions and regulations that shape the acquisition process. The chapter also describes the data sources and selection criteria employed in the research, providing insights into the specific data used to investigate the impact of block acquisitions on firm valuation.

Descriptive statistic

This chapter presents a descriptive analysis of the data, providing insights into the characteristics of the observed block acquisitions. It examines the distribution of events by acquirer group and block size, shedding light on the prevalence of different types of acquisitions. The chapter offers a preliminary overview of the data, laying the groundwork for the subsequent event study analysis.

Event Study

This chapter introduces the event study methodology, explaining why it is particularly suitable for examining the impact of block acquisitions on firm valuation. It details the methodology used in the study, including the selection of event windows and the calculation of abnormal returns. The chapter then presents the empirical results, highlighting the findings regarding the valuation effects of block acquisitions by different acquirer types and block sizes. The results are discussed in relation to existing literature and research, providing a contextualized interpretation of the findings.

Schlüsselwörter (Keywords)

This study focuses on corporate governance, shareholder structure, and valuation, specifically examining the influence of block acquisition by different acquirer types on firm value in Germany. Key concepts include voting block acquisition, shareholder structure, valuation effects, event study methodology, heterogeneity among block acquirers, legal and regulatory frameworks, and the impact of specific acquirer types such as banks, hedge funds, and corporations.

• College: University of Bonn (Finanzwirtschaftliches Institut)
• Grade: 1,7
• Author: Dennis Eggert (Author)
• Publication Year: 2008
• Pages: 48
• Catalog Number: V112170
• ISBN (eBook): 9783640120338
• ISBN (Book): 9783640120703
• Language: English
• Tags: Value, Germany