Abstract
Corporate Mergers and Acquisitions (M\( { \& }\)As) are notoriously complex, and risk management is one of the essential aspects of the analysis process for decision-making on M\( { \& }\)A deals. Empirically, we see that some M\( { \& }\)A transactions are not successful in part because of the increased exposure to correlated sectors, suggesting that the merged entity possesses increased risk in the market. This motivates our research on risk evaluation processes for corporate M\( { \& }\)A deals. In this paper, a decision making scheme using a reasonable risk measure is introduced and surveyed. Numerical examples are presented.
Similar content being viewed by others
References
Acerbi C, Tasche D (2001) On the coherence of expected shortfall. J Banking Finance 26:1487–1503
Ané T, Kharoubi C (2003) Dependence structure and risk measure. J Bus 76(3):411–438
Artzner P, Delbaen F, Eber J, Heath D (1999) Coherent measures of risk. Math Finance 9(3):203–228
Ben-Tal A, Teboulle M (1986) Expected utility, penalty functions, and duality in stochastic nonlinear programming. Manag Sci 32(11):1445–1466
Ben-Tal A, Teboulle M (2007) An old-new concept of convex risk measures: the optimized certainty equivalent. Math Finance 17(3):449–476
Berger A, Saunders A, Scalise J, Udell GF (1998) The effects of bank mergers and acquisitions on small business lending. J Financial Econ 50:187–229
Boros E, Elbassioni K, Gurvich V, Khachiyan L, Makino K (2003) An intersection inequality for discrete distributions and related generation problems, vol 2719. Springer, Berlin
Dentcheva D, Ruszczyński A (2009) Optimization with multivariate stochastic dominance constraints. Math Program 117:111–127
Embrechts P, McNeil A, Straumann D (1999) Correlation and dependency in risk management : properties and pitfalls. Departement of Mathematik, ETHZ, Zürich, Working Paper
Embrechts P, Lindskog F, McNeil A (2001) Modeling dependence with copulas and applications to risk management. Departement of Mathematik, ETHZ, Zürich, Working Paper
Erickson M (1998) The effect of taxes on the structure of corporate acquisitions. J Account Res 36(2):279–298
Ernst&Young (2013) M&A Tracker Insights. EYGM Limited
Föllmer H, Penner I (2006) Convex risk measures and the dynamics of their penalty functions. Stat Decis 24:61–96
Föllmer H, Schied A (2002) Convex measures of risk and trading constraints. Finance Stoch 6:429–447
Föllmer H, Schied A (2010) Convex and coherent risk measures. In: Cont R (ed) Encyclopedia of quantitative finance. Wiley, Hoboken
Frittelli M, Gianin ER (2002) Putting order in risk measures. Finance Res Lett 26:1473–1486
Gregoriou GN, Renneboog L (2007) International mergers and acquisitions activity since 1990: recent research and quantitative analysis. Elsevier, Amsterdam
Hagedoorn J, Duysters G (2002) External sources of innovative capabilities: the preferences for strategic alliances or mergers and acquisitions. J Manag Stud 39:167–188
Jarrow R, Purnanandam AK (2005) A generalized coherent risk measure: the firms perspective. Finance Res Lett 2:23–29
Jaruzelski B, Mueller M, Conway P (2009) The top 10 fallacies and self-deceptions M&A integration. Booz&co., New York
Joe H (1997) Multivariate models and multivariate dependence concepts. Chapman and Hall/CRC, London
Jorion P (2006) Value at risk: the new benchmark for managing financial risk, 3rd edn. McGraw-Hill, New York
Junker M, May A (2005) Measurement of aggregate risk with copulas. Econom J 8:428–454
Kou S, X Peng C, Heyde C (2013) External risk measures and basel accords. Math Oper Res 38(3):393–417
Lee J, Prékopa A (2013) Properties and calculations of multivariate risk measures: MVaR and MCVaR. Ann Oper Res 211(1):225–254
Luciano U, Vecchiato E, Cherubini W (2004) Copula methods in finance. Wiley, New York
Müller A, Stoyan D (2002) Comparison methods for stochastic models and risks. Wiley, Chichester
Nahavandi A, Malekzadeh A (1988) Acculturation in mergers and acquisitions. Acad Manag Rev 13(1):79–90
Noyan N, Rudolf G (2013) Optimization with multivariate conditional value-at-risk constraints. Oper Res 61(4):990–1013
Pflug GC (2000) Some remarks on the value-at-risk and conditional value at risk. In: Probabilistic constrained optimization, pp 272–281
Prékopa A (1973) Contributions to the theory of stochastic programming. Math Program 4:202–221
Prékopa A (1990) Dual method for a one-stage stochastic programming problem with random rhs obeying a discrete probability distribution. Oper Res 34:441–461
Prékopa A (1995) Stochastic programming. Kluwer, Dordrecht
Prékopa A (2012) Multivariate value at risk and related topics. Ann Oper Res 193(1):49–69
Prékopa A, Vizvári B, Badics T (1998) Programming under probabilistic constraint with discrete random variable. Kluwer, Dordrecht
Rose T, Frame T (2011) The 10 steps to successful M&A integration. Bain & Company Inc., Boston
Saita F (2007) Value at risk and bank capital management. Elsevier, Amsterdam
Shimizu K, Hitt M, Vaidyanath VD Pisano (2004) Theoretical foundations of cross-border mergers and acquisitions: a review of current research and recommendations for the future. J Int Manag 10:307–353
Szegö G (2002) Measures of risk. J Banking Finance 26:1253–1272
Uryasev S, Rockafellar R (2000) Optimization of conditional value at risk. J Risk 2:21–41
Walsh J (1988) Top management turnover following mergers and acquisitions. Strateg Manag J 9:173–183
Wulf J, Singh H (2011) How do acquirers retain successful target CEOs? The role of governance. Manag Sci 57(12):2101–2114
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Lee, J., Prékopa, A. Decision-making from a risk assessment perspective for Corporate Mergers and Acquisitions. Comput Manag Sci 12, 243–266 (2015). https://doi.org/10.1007/s10287-014-0221-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10287-014-0221-y