Do minority shareholders benefit from parent-subsidiary mergers?

Hardjo Koerniadi and Alireza Tourani-Rad

International Journal of Managerial Finance, 2019, vol. 17, issue 1, 166-183

Abstract: Purpose - The purpose of this paper is to investigate the operating and stock performance of subsidiaries prior to a parent–subsidiary merger and examine whether minority shareholders benefit from such a merger. Design/methodology/approach - This paper employs a refined performance-adjusted discretionary accrual model as a measure for earnings management prior to parent–subsidiary mergers. Findings - This paper finds evidence supporting the notion that subsidiaries’ operating performance is manipulated downward prior to parent–subsidiary mergers, but the incentive to expropriate minority shareholders depends on a parent’s percentage ownership of its subsidiary prior to the merger. Practical implications - The findings of this paper have practical implications for investors and especially for policy makers to regulate this type of mergers. Originality/value - This study contributes to the thin literature on parent–subsidiary mergers by providing empirical evidence that parent companies can expropriate their minority shareholders’ wealth in these mergers. This finding is consistent with the minority expropriation hypothesis, which contradicts the findings in prior studies on this unique type of mergers.

Keywords: Earnings management; Controlling shareholders; Expropriation; Abnormal returns; Minority shareholders; Parent–subsidiary mergers (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-06-2018-0173

DOI: 10.1108/IJMF-06-2018-0173

Access Statistics for this article

International Journal of Managerial Finance is currently edited by Dr Alfred Yawson

More articles in International Journal of Managerial Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().