Deal Initiation in Mergers and Acquisitions
82 Pages Posted: 26 Jul 2013 Last revised: 6 Dec 2018
Date Written: November 3, 2018
We investigate the effects of target initiation in mergers and acquisitions. We find target-initiated deals are common and that important motives for these deals are target economic weakness, financial constraints, and negative economy-wide shocks. We determine that average takeover premia, target abnormal returns around merger announcements, and deal value to EBITDA multiples are significantly lower in target-initiated deals. This gap is not explained by weak target financial conditions. Adjusting for self-selection, we conclude that target managers’ private information is a major driver of lower premia in target-initiated deals. This gap widens as information asymmetry between merger partners rises.
Keywords: Mergers and acquisitions, Merger initiation; Financial distress; Financial constraints; Economic shocks; Information asymmetry; Takeover premia; Self-selection problem
JEL Classification: G34
Suggested Citation: Suggested Citation