Faculty profile

One of the primary areas of research Professor Tsai focuses on is related to corporate international mergers and acquisitions (M&As). In particular, the issues critical to acquiring firm shareholder’s wealth are what have been studied and examined most thoroughly. These issues, for instance, include the existence of the wealth effects, market reactions after M&A announcements, the determinants of the M&A wealth effects, winning acquiring firm characteristics, and the implications for the acquirers and policymakers, just to name a few. Below is a brief description outlining some of his research findings and his ongoing research agenda.

One of his researches provides evidence concerning the U.S. firms engaged in international acquisitions and argues that the market valuation of international acquisitions is related to corporate governance characteristics of acquiring firms such as managerial ownership. In contrast to existing studies, market reactions to international acquisitions are generally favorable. Cross section estimations of cumulative market returns indicate little evidence in support of internalization theory. However, the effect of managerial equity ownership is highly significant and positive. These results are consistent with the notion that equity ownership sensitizes the management toward undertaking value-enhancing international acquisitions, countering agency costs arising from the complexity of international operations.

Existing work on international acquisitions is open with respect to the characteristics of winning and losing acquirers. One of my studies examines a resource-based interpretation that a firm’s resources and capabilities are reflected in its financial ratios and management incentives. The results show that the standard financial ratios of US firms do contain information regarding the characteristics of winning and losing international acquisitions in terms of market reactions to acquisition announcements. In particular, winners have superior liquidity and more conservative debt ratios than losers. The efficiency ratios are also better for winners, but profitability ratios are actually lower for winners than losers. In addition, winners have better incentive-based executive compensation and ownership schemes than losers. Overall, the results support a resource-dependent theory as applied to financial resources and capabilities, and underscore the importance of good internal corporate governance as a requisite capability assisting the realization of potential gains from international acquisitions.

His ongoing researches include, also, the comparison between domestic and foreign M&A transactions and their respective impacts on firm values. More studies are being conducted based on different periods of elevated international M&A activities, such as the first international merger waves, the cross-border M&As prior to the latest financial crises and afterwards.