Kimberly

Research Question:#

The influence of Covid on M&A announcement returns

Theory:

• You have to think a lot more about your hypothesis! What you are saying now, is that the market agrees more with CEOs undertaking acquisitions during the Covid pandemic in comparison to outside the Covid pandemic. So, overconfident CEOs are less bad for shareholders during Covid.

• Also, why do you think only overconfident CEOs undertake mergers? Why only focus on overconfident CEOs?

  • Are only overconfident CEOs penalized?
  • Or are non-overconfident CEOs also penalized?
  • And during Covid:
    • Does this penalization decrease for both overconfident and non-overconfident CEOs?
    • Why?

• Large, cash-rich firms were pursuing companies that had been damaged by the crisis. European companies in particular became interesting targets due to a weaker rebound in stocks (Aliaj et al., 2020).

  This is a very good and interesting justification! But:

  Governments were even moving to set up additional regulations to prevent companies in strategic sectors from hostile takeovers (Knoop, 2020).

  Isn’t this a major confounding factor in finding the influence of Covid on negative merger announcement returns?

Methodology:

• I agree with the basics of your methodology (event study around announcement returns).
• You need to be more specific about how to measure overconfidence.
  • Will you also use press-based measure? How will you do it?
  • What will be your geographical focus?
• How will you disentangle the effect of Covid from the effect of changing merger regulations because of Covid?
• Hypothesis 1 comes out of the blue: you have argued for quite something else in the preceding sections.
• Hypothesis 2 seems more in line with what you wrote: but why not focus on the difference between overconfident and non-overconfident CEO, and whether that difference changes during Covid
  • That also provides you with a very clear task: make this hypothesis plausible with the help of established theory.
• You have to think more about a proxy for undervaluation (“cheap stocks”) during Covid 19: what does the empirical literature usually do?
  • Not sure if necessary
• Covid Data: Johns Hopkins Coronavirus Repository
• Stock data: ? WRDS
• Merger data:

Conclusion:

• Your research design is feasible, but you have to work a lot! You have to think about/describe more clearly a lot of aspects, and probably reformulate some of the hypothesis. Also, you have to be more specific about the data, variables and sources you are planning to use.