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http://ssrn.com/abstract=1544500
 
 

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The Powerful and Pervasive Effects of Ownership on M&A


John C. Coates, IV


Harvard Law School

June 2010

Harvard Law and Economics Discussion Paper No. 669

Abstract:     
Ownership dispersion is a first-order determinant of M&A practices. Firms with dispersed ownership are more salient, and tend to be larger, but dispersion varies significantly among even large US businesses, and affects M&A deal size, duration, techniques, contract terms, and outcomes. These effects arise directly from the economics of dispersion, but also from interactions between economics and law. Dispersion creates transaction costs and heterogeneous beliefs and preferences that have straightforward effects on M&A deal size, techniques, and some contract terms. But dispersion also has less intuitive, indirect, and important effects as mediated through laws that among other things compensate for agency costs and collective action problems. Each key body of law for M&A – contract law, corporate law, securities law, and antitrust law – is shaped in practice by ownership of target firms. These effects are tested in 20 hypotheses on how ownership dispersion affects M&A, with comprehensive M&A data from the 1990s and 2000s, and a new detailed hand-coded matched sample of 120 recent public and private target M&A contracts. The data show the importance of ownership to M&A deal structure, choice of consideration, bid duration, completion rates, risk-allocation, and dispute resolution. Appreciation of how pervasive and powerful the effects of ownership are on M&A should improve contracting and has implications for investment bankers, boards, courts, and researchers in choosing comparable transactions for valuation, benchmarking, doctrinal analogies, drafting models, teaching M&A in business and law schools, and econometric modeling of M&A.

Number of Pages in PDF File: 42

JEL Classification: D23, D74, G32, G34, G38, K12, K21, K22, K40, K41

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Date posted: January 30, 2010 ; Last revised: June 4, 2010

Suggested Citation

Coates, IV, John C., The Powerful and Pervasive Effects of Ownership on M&A (June 2010). Harvard Law and Economics Discussion Paper No. 669. Available at SSRN: http://ssrn.com/abstract=1544500 or http://dx.doi.org/10.2139/ssrn.1544500

Contact Information

John C. Coates (Contact Author)
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
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