Time Lost in Negotiations: Productive or Wasteful?
44 Pages Posted: 8 Dec 2013 Last revised: 12 Nov 2014
Date Written: November 11, 2014
This paper examines the influence of time devoted to deal negotiations on the outcomes of mergers and acquisitions. Under “productive negotiation” hypothesis, longer negotiations would increase the probability of deal completion as a result of a greater potential to achieve understanding between the parties. Under “wasteful negotiation” hypothesis, longer negotiations would decrease the probability of deal completion as a result of a greater potential for discord between the parties. Using the Probit analysis, I find that length of the private part of the takeover process (before public announcement) positively influences the overall probability of deal completion. Refining my results in the framework of Survival analysis, I identify factors that drive total durations and show that the shape of the estimated hazard rate is not constant over time. Indeed, the conditional likelihood of deal completion first grows with negotiation times (increasing hazard) and then becomes negatively affected by them (decreasing hazard).
Keywords: Negotiation time, Deal completion, Mergers and acquisitions
JEL Classification: G34
Suggested Citation: Suggested Citation