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The deadline for submission is '''March 7th, 2012''', though earlier submission is encouraged. Authors will be notified if their paper has been selected by the end of April. The program committee includes: Thomas Hellmann, Adam Jaffe, Bill Kerr, Josh Lerner, David Robinson, Morten Sorenson, Bob Strom, and others.
The program committee includes: Thomas Hellmann, Adam Jaffe, Bill Kerr, Josh Lerner, David Robinson, Morten Sorenson, Bob Strom, and others.==Rebuilding the Paper==
==Errors The paper required a complete rebuild of all the results, with the data updated to the end of 2011. We can also consider several extensions to the paper, detailed in the existing version==a later section.
The Dierkins 1991 reference is missing: @article{dierkens1991information, title={Information asymmetry and equity issues}, author={Dierkens, N.}, journal={Journal of Financial and Quantitative Analysis}, volumeDataset Processing Notes={26}, number={2}, pages={181--199}, year={1991}, publisher={Cambridge Univ Press} }
Other pointsVariable check notes:*There 1,514 had estimated announce dates. These were flagged.*443 had their transaction value amended. These were a few other typosflagged.*Also the GX paper gets very little mention - I thought we 41,473 had a whole subsection devoted deal code of 'C' for completed. These were kept.*The number of bidders was always disclosed and 2 in 54 cases and 3 in 2 cases. *Number of considerations offered and sought varied from 1 to them8*State codes were USPS official standards: https://www.usps.com/send/official-abbreviations.htm*I There was surprised that we didn't have a year fixed-effect variable data from 35 stock exchanges. 32,177 observations recorded Amex, Nasdaq or NYSE.*25 acquirors were LBO firms and 3 targets were LBOs These were excluded.*All acquirors and targets had 6 digit NAIC codes, though some were truncated e.g. 517000 and others invalid. COMPUSTAT NAIC codes were used when SDC NAIC codes failed when these were recorded in the main analysis (though we have ''Boom'', which is more interesting)WRDS.
==Rebuilding Flag Exclusions:*Cases where the Paper==target was bankrupt or distressed as indicated by: TargetBankrupt, TargetBankInsolvent, Liquidation, Restructuring.*Cases where the form wasn't genuinely privately-held as indicated by: OpenMarketPurchases, GovOwnedInvolvement, JointVenture, Privatization (which capture government sales).*Cases where there was a share recap going on concurrently with the acquisition: Recap*Targets that had LBO involvement (more will likely be removed in the next phase of matching to LBO targets): LBO, SecondaryBuyoutFlag, ReverseTakeOver (used for LBO'd firms doing a reverse take over), IPOFlag (likewise).*Firms where the deal began as a rumor (so the information leakage is problematic): DealBeganAsRumor
====Processing Notes====
#The data was imported into Postgres. There were 41,572 records
#The flag variables were reviewed for variation - some had no bite (e.g. Spinoff, TwoStepSpinOff, and Splitoff) and were ignored. Others led to data being discarded as flag exclusions.
#All variables were checked for coding, range, dispersion, etc. The following were of particular note:
#Restriction were placed on the data (Completion, flags, exclude LBOs) etc. This reduced the data to 40,035 observations
#Certain variables were reprocessed (see below)
#Acquiror and Target names were keyed to account for repetitions etc.
#Duplicate acquisition data (same event) was eliminated
#Multiple acquisition of the same target (i.e. a target is acquired, spun-off and acquired again, etc) were eliminated.
#CUSIPs were processed into 6, 8, and 9 digit variables, by search COMPUSTAT annual data (Jan 1978 - Jan 2012) using the 6 digit CUSIP and then finding the correct 9 digit CUSIP for a particular issue-year. Note that a 9 digit CUSIP is a 6 digit Issuer Number, a 2 digit Issue Number, and a check digit. There were 27,401 acquisitions with 7,348 valid CUSIPs.
#CRSP data was retrieved and processed (see below). After processing we had data for 23,802 observations.
#COMPUSTAT data was retrieved and processed (see below)
#VC PortCo data was retrieved and processed. PortCos were flagged and portco data added for appropriate observations.
#LBO data was retrieved and processed. 164 observations were discarded.
#Acquisition Histories were calculated as number of past acquisitions for each acquirer: Total, VC only, Non-VC only
*Accounting vars were converted to 2011 real values using the official BEA implicit GDP price deflator index: http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=13&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1978&LastYear=2010&3Place=N&Update=Update&JavaBox=no)
#Percentage variables were multiplied by 100 to get nice coefficients
#Every observation was assigned a unique observation number (obsno)
#Compound variables such as ''horiz'',''vert'', and ''cong'' were calculated.
Variable check notes:
*1,514 had estimated announce dates. These were flagged.
*443 had their transaction value amended. These were flagged.
*41,473 had a deal code of 'C' for completed. These were kept.
*The number of bidders was always disclosed and 2 in 54 cases and 3 in 2 cases.
*Number of considerations offered and sought varied from 1 to 8
*State codes were USPS official standards: https://www.usps.com/send/official-abbreviations.htm
*There was data from 35 stock exchanges. 32,177 observations recorded Amex, Nasdaq or NYSE.
*25 acquirors were LBO firms and 3 targets were LBOs These were excluded.
*All acquirors and targets had 6 digit NAIC codes, though some were truncated e.g. 517000 and others invalid. COMPUSTAT NAIC codes were used when SDC NAIC codes failed when these were recorded in WRDS.
Flag Exclusions:
*Cases where the target was bankrupt or distressed as indicated by: TargetBankrupt, TargetBankInsolvent, Liquidation, Restructuring.
*Cases where the form wasn't genuinely privately-held as indicated by: OpenMarketPurchases, GovOwnedInvolvement, JointVenture, Privatization (which capture government sales).
*Cases where there was a share recap going on concurrently with the acquisition: Recap
*Targets that had LBO involvement (more will likely be removed in the next phase of matching to LBO targets): LBO, SecondaryBuyoutFlag, ReverseTakeOver (used for LBO'd firms doing a reverse take over), IPOFlag (likewise).
*Firms where the deal began as a rumor (so the information leakage is problematic): DealBeganAsRumor
Processing of variables:
*The original announce date was determined as min{announcedate, announcedateorg}. Those where annoucedate \ne announcedateorg were flagged.
*Percentage stock, cash, other and unknown were reprocessed to include data from the ConsidStruct field, which tags Stock Only, Cash Only, etc.
*State codes were reprocessed to numerics using the lookup table below
*IT, BT (Biotech), HT (Hightech) and NAIC1, NAIC2, NAIC3, Indu1, Indu2, Indu3 variables were created using the lookup tables below (see the variable descriptions for more info). Note that the IT, BT and HT variables were coding using aggregate codes whereever possible (i.e. 517110, etc, all appear in IT and cover the 517 code entirely, so the 517 block would be coded as IT even if SDC recorded the code as 517000.
Protected "VC Acquisitions Paper" [edit=trusted:move=trusted:read=trusted]
This page details the work rebuilding [[Brander Egan (2007) - The Role of VCs in Acquisitions]] in to a new paper for our submission to the RCFS special issue and associated conference.
Connect to the Postgres database (inside the Berkeley network only) with: psql -h 128.32.252204.201 203 -U ed_egan Acqs ==Current Status== This paper was submitted (dual submission) to the 3rd Annual Entrepreneurial Finance and Innovation Conference (EFIC) conference and the Review of Corporate Finance Studies (RCFS). It was rejected from both. The key points from the reviewers were:*We should explain how we get a different result from Masulis and Nahata (2011), who find a +3% return premium to VC-backed acquisitions*We should use our continous measures of IA (i.e., look to find a monotonic effect). And consider within-industry acquisitions to see whether this mitigates IA problems.*To back up the winner's curse we should consider the number of competing bidders.*Possibly we should consider long rum performance and attempt to explain why the acquirers buy VC-backed firms.*Focus less on the univariate results. The obvious possibilities for this paper are to:*Focus more on the IA.*Do a supply-side VC analysis (i.e., include reputations, the possibility of grandstanding, etc.) The immediate 'to do' is:*Read the Masulis and Nahata (2011) paper carefully.*Do a proper literature review again! ===Lit Review=== The main [[VC Acquisitions Lit Review]] page details searches for papers related to the intersection of venture capital, acquisitions and explaining abnormal returns. There are seperate lit reviews for related topics, such as:*[[Information Asymmetry Measures]]*[[Information Asymmetry in Acquisitions Lit Review]]*[[The Winners Curse]] The key papers found were:*[[Masulis Nahata (2011) - Venture Capital Conflicts Of Interest]]*[[Gompers Xuan (2008) - Bridge Building In Venture Capital Backed Acquisitions]]*[[Gompers Xuan (2006) - The Role Of Venture Capitalists In The Acquisition Of Private Companies]]*[[Benson Ziedonis (2010) - Corporate Venture Capital And The Returns To Acquiring Portfolio Companies]] ====Comparing Results==== Comparing our CARs with those from the literature (some values are inferred - see the review pages) Our Paper M&N'11 G&X'06 G&X'08 B&Z'10 Data Range 80-'10 91-06 90-01 92-06 80-03 Model Mkt Sub Mkt Mkt Mkt Univariate Private Target 0.7% 4.8% 1.5% NA NA VC 0.3% 6.3% 0.6% 0.7% 0.7% Non-VC 0.8% 3.4% 1.6% NA NA With Controls VC indicator 0.5% 2.7% 0.3% Target Ind. Q 4.8% Related 0.5% R2 1.6% 4.3% 1.6% N 22,961 490 8693 1261 489 Note that using the subtraction model our univariate results are: 0.95% (all), 0.98% (Non-VC) and 0.59% (VC). ==Latest Version== The latest version of the paper is:*[[:Image:Brander Egan (2012) - Investor Expectations and the Role of Venture Capitalists in Acquisitions.doc |Brander Egan (2012) - Investor Expectations and the Role of Venture Capitalists in Acquisitions.doc]] Note: This version was submitted to the both the EFIC and RCFS. The current reference is:*Brander, James A., and Edward J. Egan (2012), "Investor Expectations and the Role of Venture Capitalists in Acquisitions: Bargaining and the Winner’s Curse", Working paper, March 2012, under review for inclusion in the Third Entrepreneurial Finance and Innovation Conference and a special issue of Review of Corporate Finance Studies.
==Submission Details==
This paper was '''submitted''' under the dual-submission process to both the '''3rd EFIC and the RCFS''' on March 7th. The Third Entrepreneurial Finance and Innovation Conference (EFIC) on June 10th-11th in Boston, MA, is supported by the Kauffman Foundation and the Society for financial studies. Conference papers will be considered for inclusion in a special issue of the Review of Corporate Finance Studies(RCFS).
The conference details are here: http://sites.kauffman.org/efic/overview.cfm
#The Boehmer reference has acquisitions data was retrieved from SDC (see below) and imported into Postgres. There were 41,572 records.#The flag variables were reviewed for variation - some had no bite (e.g. Spinoff, TwoStepSpinOff, and Splitoff) and were ignored. Others led to data being discarded as flag exclusions.#All variables were checked for coding, range, dispersion, etc. #Restriction were placed on the data (Completion, flags, exclude LBOs) etc. This reduced the data to 40,035 observations#Certain variables were reprocessed, e.g. Percentage Shares, NAIC codes, etc. (see below)#Acquiror and Target names were keyed to account for repetitions etc.#Duplicate acquisition data (same event) was eliminated#Multiple acquisition of the same target (i.e. a typo target is acquired, spun- off and acquired again, etc) were eliminated.#CUSIPs were processed into 6, 8, and 9 digit variables, by searching COMPUSTAT annual data (Jan 1978 - Jan 2012) using the second author 6 digit CUSIP and then finding the correct 9 digit CUSIP for a particular issue-year. Note that a 9 digit CUSIP is Mus'''u'''mecia 6 digit Issuer Number, a 2 digit Issue Number, and a check digit. CRSP uses 8 digit Cusips. AlsoThere were 27, in para 2401 acquisitions with 7, p348 valid CUSIPs.#CRSP data was retrieved and processed (see below).19After processing we had data for 23, I think it 802 observations.#COMPUSTAT data was McKinley that "suggest[ed] a method that combines both cross-sectional retrieved and processed (see below)#VC PortCo data was retrieved and processed. PortCos were flagged and portco data added for appropriate observations.#LBO data was retrieved and timeprocessed. 164 observations were discarded.#Acquisition Histories were calculated as number of past acquisitions for each acquirer: Total, VC only, Non-series informationVC only#Accounting vars were converted to 2011 real values using the official BEA implicit GDP price deflator index: http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=13&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1978&LastYear=2010&3Place=N&Update=Update&JavaBox=no)#Percentage variables were multiplied by 100 to get nice coefficients#Every observation was assigned a unique observation number (obsno)#Compound variables such as ''horiz'',''vert'', and ''cong'' were calculated."
Processing of variables:*The paper required a complete rebuild of all original announce date was determined as min{announcedate, announcedateorg}. Those where annoucedate \ne announcedateorg were flagged.*Percentage stock, cash, other and unknown were reprocessed to include data from the resultsConsidStruct field, with which tags Stock Only, Cash Only, etc.*State codes were reprocessed to numerics using the data updated to lookup table below*IT, BT (Biotech), HT (Hightech) and NAIC1, NAIC2, NAIC3, Indu1, Indu2, Indu3 variables were created using the lookup tables below (see the end of 2011variable descriptions for more info). We can also consider several extensions to Note that the paperIT, detailed BT and HT variables were coding using aggregate codes whereever possible (i.e. 517110, etc, all appear in a later sectionIT and cover the 517 code entirely, so the 517 block would be coded as IT even if SDC recorded the code as 517000.
===Acquisitions Data===
*Target is a Leveraged Buyout Firm
*And many others. These will be reviewed and excluded.
Other Notes:
*The NormalizeFixedWidth.pl script uses the spacing in the header to determine the column breaks. The EquityValue column has two spaces in front of its name that screws this. Both EquityValue and EnterpriseValue needed to be imported as varchar(10), as they have the code 'np' in some observations.
*The NormalizeFixedWidth.pl script was modified so that it only drops commas in numbers and not those in names etc.
===CRSP Data===
**Let <math>\epsilon</math> be the residual from the mkt model regression. Then calc: <math>\sigma_{\epsilon}={( \mathbb{E}(\epsilon - \mathbb{E} \epsilon))}^{\frac{1}{2}}</math>
**RMSE of the Mkt Model: <math>RMSE={( \mathbb{E}(X- \mathbb{E} X))}^{\frac{1}{2}}</math> - this is in the ereturn list in STATA and will be used for the Patell Standard Errors.
*Then other variables were calculated or included:
**The cummulative return <math>CAR_i = \sum_t AR_i</math>
**THe The price 30 days before the acquisition was recorded for the market value calculation
===COMPUSTAT Data===
*Year x anaic2 (2 digit acquiror naic) fixed effect indicators were created
*CARM variables (Market Model CAR) were created for the 7 day window for the figures
*Vscore variables were created for the significance tests on CARS using the RMSE from the estimation window: <math>vscore = abs \left ( | \frac{carm}{\left( \frac{rmse}{\sqrt{n}} \right)} \right)|</math>. This was done on a per group basis, using the variable names xgroupvar, where group=it or itvc or null.
*Year range variables from 1 to 6 were created for years 1985-1989, ... , 2005-2009, 2010-2011.
*In the regression analysis we clustered standard errors on acqno (the cusip-announceday pair that could have multiple acquisitions, marked with ''sameday''=1), using STATA's vce(cluster ''clustvar'') documented here: http://www.stata.com/support/faqs/stat/robust_ref.html
