Corporate Takeovers and Economic Efficiency
B. Espen Eckbo
Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)
October 15, 2013
ECGI - Finance Working Paper No. 391/2013
Tuck School of Business Working Paper No. 2013-122
I review recent takeover research which advances our understanding of "who buys who" in the drive for productive efficiency. This research provides detailed information on text-based definitions of product market links between bidders and targets, the role of the supply chain and industrial networks in driving takeovers, target plant efficiency, and pre- and post-takeover investment in product innovation. Moreover, recent evidence adds to our understanding of "how firms are sold" (transaction efficiency). Almost half of takeovers involving public targets are initiated by the seller and not by the buyer. Targets are strongly averse to bidder toeholds, and the merger negotiation process strongly protects proprietary information. Takeover premiums leave traces of rational bidding strategies, including bid preemption and winner’s curse avoidance. Recent tests employing exogenous instrumentation of bidder valuations reject that bidder shares are systematically overpriced in all-stock bids, and suggest that bidder synergy gains are much larger than previously thought.
Number of Pages in PDF File: 50
Keywords: Takeover, supply chain, innovation, bidding, deal terms, takeover gains
JEL Classification: G30, G34
Date posted: October 17, 2013 ; Last revised: December 4, 2013
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