Dr. Joshua Austin
Dr. Joshua Austin presents a paper titled “Controlling for selection bias: The role of firm size in acquisition gains.” This Economics Seminar is Friday, Dec. 4, at 3 p.m. in Bentley Annex 302.
Austin is Visiting Assistant Professor of Economics at Ohio University.
Abstract: It is well documented in the Finance literature that large firms are more likely than small firms to execute mergers but less likely to benefit from them. In this paper, we explore a new explanation for this result. Specifically, we employ the Heckman selection model to correct for bias resulting from the correlation between large firms being more likely to make acquisitions and expected acquisitions being met less favorably by the market. We find that once the bias has been controlled for, the negative impact of firm size on merger returns becomes insignificant (and positive). Our methodology benefits greatly from the use of two recently developed variables explaining merger likelihood but not merger outcomes.
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