Abstract
In the first essay, I formulate an empirical model that lets me estimate what bidders pay for separate components of a target’s sources of cash flows. Specifically, my model allows me to examine previously disparate threads in the literature: whether acquirers overpay or not, and if so, which asset component do they overpay for, whether the form of payment, i.e., stock or cash, relates to which asset component an acquirer will pay a higher premium, whether there is a difference between LBO specialists and corporate acquirers in the valuation of the components of a firm’s assets, in particular the value of slack (cash and debt capacity), and whether acquirers from the same industry as the target value the same items as acquirers from a different industry. Overall, I find that acquirers overpay for inventories, intangibles, and financial slack but that the overpayment may be attributed to the use of overvalued stock as a means of payment by acquirers. I also find that corporate acquirers, in general, value items that create synergy such as assets-in-place, R&D, and intangibles, while LBO specialists value financial slack. Lastly, I find that related acquirers overpay for inventories, fixed assets, and intangibles, while unrelated acquirers overpay for financial slack. In the second essay, I examine the effect of culture on analyst herding. Prior empirical studies on analysts herding show that analyst characteristics determine whether an analyst will herd or not. These papers examine the behavior of an individual analyst compared to the behavior of the group. On the other hand, the predisposition of individuals to herd with the group could be affected by how their background and upbringing shapes them, i.e., culture. In contrast to other studies that look at herding within a single country, I do a comparative analysis of herding across 47 countries and show that cross sectional differences in the tendency of analysts to herd in different countries is related to cross sectional differences in their cultural dimensions. I control for analyst characteristics and compare across different cultural dimensions from Hofstede such as Uncertainty Avoidance, Individualism, and Masculinity. I find that in addition to past forecasting performance, general experience, and past boldness, Individualism also has a direct negative effect on boldness. I also find that all three measures of culture affect the probability that an analyst moves down (up) to a lower (higher) brokerage house. Thus, I show cultural differences may also affect analysts’ career concerns.
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