Cash holdings, corporate governance, and acquirer returns

Financial Innovation

Table 1 Annual distribution of acquisitions, announcement abnormal returns, and correlation among corporate governance measures

Year	Number of Acquisitions		E-index		G-index
Panel A. Annual distribution of the acquisition sample and governance indices
1996	243		2.2 [2.0]		9.7 [10.0]
1997	240		2.3 [2.0]		10.1 [10.0]
1998	425		2.0 [2.0]		8.7 [ 8.0]
1999	326		2.0 [2.0]		9.1 [ 9.0]
2000	295		2.2 [2.0]		9.3 [ 9.0]
2001	238		2.2 [2.0]		9.3 [ 9.0]
2002	327		2.2 [2.0]		9.1 [ 9.0]
2003	304		2.4 [2.0]		9.1 [ 9.0]
2004	345		2.5 [2.0]		9.3 [ 9.0]
2005	322		2.6 [3.0]		9.6 [ 9.5]
2006	275		2.4 [2.0]		9.3 [ 9.0]
Mean [Median]			2.3 [2.0]		9.3 [ 9.0]
N	3,340		3,340		3,340
	Mean	Median	Min	Max	25th	75th
Panel B. Announcement abnormal returns
CAR_MM(−2, +2)	0.493^***	0.311^***	−20.66	23.72	−3.03	3.98
CAR_MAR(−2, +2)	0.769^***	0.530^***	−20.88	24.04	−2.78	4.29
	CAR_MM(−2, +2)	E-index	Excess Cash	Industry NPM	Pension Ownership
Panel C. Pearson correlations among CARs, the E-index, and conditioning factors
CAR_MM(−2, +2)	1.00
E-index	−0.01	1.00
Excess Cash	−0.07^***	−0.17^***	1.00
Industry NPM	−0.03^**	0.08^***	−0.18^***	1.00
Pension Ownership	−0.03	0.05^**	−0.01	0.03^*	1.00

Panel A shows the annual distribution of 3,340 acquisitions from 1996 to 2006. Mean and median in blanket values of governance indices are reported in the next two columns. E-Index is the entrenchment index of six governance provisions and G-index is the governance index of twenty-four provisions in [12]. Panel B reports cumulative abnormal returns (CARs) using the standard event study methodology with the market model (CAR _MM) and market-adjusted returns (CAR _MAR). Panel C reports the Pearson correlation among bidder returns (CAR _MM), the E-index, and conditioning factors. Excess Cash is cash holdings net of the normal cash level estimated with the fixed-effect model (1) in Table 3. Pension Ownership is the percentage ownership by the 19 largest public pension funds. Industry NPM is the intensity of industry competition measured by industry median net profit margin for the Fama-French 48 industries. All variables are winsorized at the 1st and 99th percentiles. *, **, and ***denote significance at the10%, 5 %, and 1 % level, respectively