Corporate Takeovers and Economic Efficiency

Posted: 25 Nov 2014

See all articles by B. Espen Eckbo

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2014


I review recent takeover research that 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.

Suggested Citation

Eckbo, B. Espen, Corporate Takeovers and Economic Efficiency (December 2014). Annual Review of Financial Economics, Vol. 6, pp. 51-74, 2014, Available at SSRN: or

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)


European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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