• Does testosterone affect the behaviour of CEOs and does this affect the performance of acquisitions.
• How might testosterone affect behaviour in acquisitions?
Use theory and literature in Phycology, Finance, …..
• We measure performance of acquisitions by:
Change in stock prices in the short and long run
Accounting performance measures.
Covered in the “theory part” of the course
• We need to be able to “measure“ the level of Testosterone in (male) CEOs – content of this lecture.
References
• Levi, M., Kai Li, and Feng Zhang, 2010, Deal or no deal: Hormones and the mergers and acquisitions game, Management Science 56, 1462-1483.
• Carré, Justin M, and Cheryl M McCormick, 2008, In your face: Facial metrics predict aggressive behaviour in the laboratory and in varsity and professional hockey players, Proceedings of the Royal Society B: Biological Sciences 275, 2651-2656.
• Kamiya, Shinichi, Y. Han Kim, and Soohyun Park, 2018, The face of risk: Ceo facial masculinity and firm riske, European Financial Management.
Picture measurement of fWHR ratio
• We use pictures to measure the level of testosterone proxied by the facial-with-hight ratio (fWHR).
• We follow more or less Appendix A in:
• Kamiya, Shinichi, Y. Han Kim, and Soohyun Park, 2018, The face of risk: Ceo facial masculinity and firm risk, European Financial Management.
Method
• For each target and acquirer CEO:
Collect three different pictures of the same CEO
Calculate an average fWHR
Calculate a weighted fWHR for each CEO
Qscore is the quality score for each picture – see below• Important: Each CEO has been assigned two students to analyse pictures. It is important that you do not talk to each other about the analysis – we need independent measurements
Data
• I have extracted data from Zephyr for you so you all work with the same deals:
• Also, the following restrictions are entered:
Both target and acquirer have announcement dates.
Following deal types are deleted:
Second or third bid
Buy-outs
Buyback
Rumour and announcement dates are the same, i.e. no rumours.
• If an announcement date is on a Saturday or Sunday it has been changed to Monday.
Datafiles
• The spreadsheet alldeals.xlsx contains all the deals we are working with – deals fulfilling the various restrictions.
• Acquirer_bvd_id_number and target_bvd_id_number can be used to get additional information from Zephyr and Orbis
• Acquirer_ISIN_number and target_ISIN_number can be used to obtain additional information from Datastream.
• The sheet with CEO Info:
• Awafwhr: Aquirer-weighted-average-facial-with-height-ratio. Weighted average by Q-score of the pictures in the data-set (1 to 3 pictures).
• Twafwhr: For target
• Aafwhr: Acquirer average fwhr across available pictures.
• Tafwhr: For target.
• ACEO: Name of Acquirer CEO
• TCEO: Name of target CEO
• Aname: Name of acquirer company
• Tname: Name of target company
• Abirthyear: Birth year of acquirer CEO
• Tbirthyear: Birth year of target CEO
• Event: Announcement date
• Deal_number
• Use this code to extract information about the deal from the Zephyr database:
• Payment
• Financing of the deal
• Some accounting information
• Industrial codes
• Zephyr and Orbis are both provided by Bureau VanDijk, thus overlap in data
• Target_isin_number and acquirer_isin_number
• Note a company can have more than one ISIN number – it is a code for securities not firms. You need the code for equity or shares.
• Use these codes to extract financial market information about the acquirer and targets
• Market to book ratios
• P/E ratios etc.
• Market indexes
DataStream sheets
• For each deal we have stock price data extracted from Datastream:
Data for short-run event study:
Datastream-clean-2019_short.xlsx, Datastream-update-short.xlsx and Datastream-withdrawn-short.xlsx
Start: Is the first date of the data period with stock prices -260 weekdays before the announcement date.
End: is the end of the entire period with stock prices: estimation +60 from the announcement date.
Data for long run event study
Datastream-update-long.xlsx and Datastream-withdrawn-long.xlsx
Data starts at the same date as the short run date
5 years of daily prices after the announcement date
DataStream
• Column 1: Dates for the data
• Column2,3,4: Data for target:
Adjusted prices (code P)
Market index for the target company – constructed by DataStream as a broad-based index (code MI).
Market value of the firm (code MV).
• Columns 5,6 and 7: Equivalent data for the acquiring firm
• All prices and values are in Euro.
Warning
• DataStream
When a stock is delisted, here in general the target after the acquisition.
It might be mentioned in the extraction
The prices remain – i.e. DataStream still quotes a price.