96 Executive Stock Options, Corporate Cash Holdings and M&A Decisions 4.3 Announcement Effect for ESOs-Induced M&A Decisions While corporate cash holdings provide managers with precautionary protection for pursuing risky investments, excess cash holdings may raise investors’ concern about agency problems (Jensen, 1986; Harford, 1999; Richardson, 2006). Therefore, we next examine how investors respond to the ESOs-induced M&A decisions, especially for cashrich firms. The results are shown in Table 5. In column 1, the coefficient of Vega×Cashrich is insignificantly negative (-0.0042), indicating the market does not respond differently to the ESOs-induced M&A decisions for cash-rich firms and non-cash-rich firms. That is, investors believe a cash-rich firm undertaking M&A decisions is not necessarily due to the managerial incentive while the market reaction is not significantly positive. Columns 2 to 4 show the analyses based on different subsamples. Consistently, the coefficients of Vega×Cashrich are insignificantly positive or negative. While the results do not statistically support our third hypothesis, they somehow imply the combination of excess cash and M&A decisions is not necessarily associated with agency problems, so the market does not give a significantly negative response. Interestingly, the coefficients of Vega×Cashrich would become insignificantly positive (0.0277 in column (2) and 0.0414 in column (4)) when we focus on all-cash deals. The finding is consistent with prior studies that issuing stock to pay for M&As is often considered a negative signal of share overvaluation (Travlos, 1987; Fu, Lin, and Officer, 2013). Therefore, the market reaction to all-cash deals would become relatively positive. Table 5 Announcement Effect for ESOs-Induced M&A Decisions Dep: CAR(-2,+2) (1) (2) (3) (4) Full Sample All-Cash Deals Within Industry Sample Within Industry & All-Cash Deals Vegat-1 Deltat-1 Cashricht-1 Vega×Cashrich Delta×Cashrich Cash/TAt-1 -0.00255 (-0.19) 0.00460 (1.45) 0.00385 (0.79) -0.00416 (-0.21) -0.00362 (-0.78) -0.0291** (-2.07) -0.00811 (-0.37) 0.00924** (2.12) -0.00260 (-0.34) 0.0277 (1.03) -0.00274 (-0.49) 0.00290 (0.14) 0.00795 (0.42) 0.00132 (0.36) 0.00147 (0.21) -0.0236 (-0.83) 0.00308 (0.55) -0.0110 (-0.69) 0.00174 (0.04) 0.00838 (1.23) -0.00922 (-0.81) 0.0414 (0.98) -0.00284 (-0.35) 0.0207 (0.85)
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