Deal Initiation in Mergers and Acquisitions

82 Pages Posted: 26 Jul 2013 Last revised: 6 Dec 2018

See all articles by Ronald W. Masulis

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Serif Aziz Simsir

Sabanci University

Date Written: November 3, 2018

Abstract

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

Masulis, Ronald W. and Simsir, Serif Aziz, Deal Initiation in Mergers and Acquisitions (November 3, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 371/2013; FIRN Research Paper; Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2297817 or http://dx.doi.org/10.2139/ssrn.2297817

Ronald W. Masulis (Contact Author)

University of New South Wales, Sydney ( email )

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Serif Aziz Simsir

Sabanci University ( email )

School of Management
Istanbul, Orhanli, 34956 Tuzla
Turkey

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