New & Noteworthy
Journal Publishes Finance Professor’s Research on “Go-Shop Provisions”
April 8, 2014
Dr. Cheolwoo Lee, Associate Professor, recently published a paper titled “Effective Post-Signing Market Check or Window Dressing? The Role of Go-Shop Provisions in M&A Transactions,” in the Journal of Business Finance & Accounting. Lee co-authored this paper with his peer, Jin Q Jeon.
Four years of research and development took this article from the first draft to publishing. The paper questions whether a deal protection device that allows the target management to actively canvass and negotiate with other potential bidders for a limited time, called the go-shop provision, is actually beneficial to shareholders or if it is a fake gesture used as legal protection for target management.
Lee explains his conclusions: “By examining 1,706 M&A [merger and acquisition] deals from 2004 to 2010, we find that the go-shop provision is included for the benefit of the target shareholders. Specifically, M&A deals with the provision have higher deal premiums and deal competition. The announcement returns for these deals are significantly higher, which suggests that the market recognizes the go-shop inclusion as a positive signal. We conclude that the go-shop provision serves as an effective post-signing market check, rather than as a window dressing or cosmetic gesture.”
No one had ever formally tested the consequences of the go-shop provision, which led to Lee’s interest in the topic. The research documented in this article provides new answers and perspectives for finance.
Lee’s current research, he explains, “examines financial analysts’ objectivity in issuing recommendations under the unprecedented competition among lead underwriters and how having multiple lead underwriters in the syndicate affects firm visibility in the after-IPO market.”
The paper can be accessed online at the Wiley Online Library.