Kimberly

Feedback by Co-reader and Me#

Regarding the empirical section, the setup is essentially a differences-in-differences setup: you compare bid premiums between overconfident and non-overconfident managers pre- and during COVID. So why not be explicit about this setup and also the assumptions, such as the parallel trends assumption which needs to be met? The limitations you have right now are simply not there. There are much bigger issues relating to interpretation.

Government interference is not clearly related to premiums, whereas issues such as selection (who makes bids? composition of bidder overconfidence) and selection of targets (higher quality during crises because of less competition?) need to be discussed.

  • Problems posed by selection: if e.g. in Covid times, only big firms tend to acquire other firms, but not in non-Covid times? How can you distinguish the difference between the effect of firm size on announcement premiums, and covid?

  • Should lead to a discussion about potential control variables

Along with others I cannot come up with right now! Big picture (though COVID is topical): why not extend this paper to all market downturns instead of just COVID?

  • Relates to DiD: you can distinguish the impact of a more active regulator from the impact of Covid if you use more periods

The introduction of Covid, though, feels a little bit ad hoc, although the motivation is convincing. The literature review features a good overview of relevant theories, although it could be expanded to include other relevant studies about the determinants of M&A premiums and the effects of overconfidence. The methodology section features a clear explanation of the analysis, although there is room for elaboration on the methodological choices and assumptions underlying your empirical models, and there is also potential for more robustness checks and more elaboration of the specific methodological choices made, and a way to tackle the limitations mentioned.

Limitations#

A potential limitation to the research I am conducting could be government interference in mergers and acquisitions, which exacerbated during the Covid crisis. Due to the collapsed market, governmental institutions acknowledged companies in vital sectors trading well below their intrinsic values became easy targets for strategic cross-border acquirers. This resulted in additional regulation aimed at preventing hostile takeovers. It entails extra screening of cross-border investments and acquisitions, with the possibility of not approving the deal leading to termination (Knoop, 2020). This factor may interfere with my research, as is could possibly induce a stronger stock market reaction to deals in vital sectors. The observed cumulative abnormal return may be overstated as a consequence.

  • Can you use variation in M&A announcements to see whether the effect of these interventions is distorting your results?