Institutional Cross-Ownership and Corporate Strategy: The Case of Mergers and Acquisitions

62 Pages Posted: 15 Mar 2016 Last revised: 22 Jan 2019

See all articles by Chris Brooks

Chris Brooks

University of Reading - ICMA Centre

Zhong Chen

King's Business School, King's College London

Yeqin Zeng

Durham University Business School, Finance and Economics

Date Written: November 8, 2017

Abstract

This article provides new evidence on the important role of institutional investors in affecting corporate strategy. Institutional cross-ownership between two firms not only increases the probability of them merging, but also affects the outcomes of mergers and acquisitions (M&As). Institutional cross-ownership reduces deal premiums, increases stock payment in M&A transactions, and lowers the completion probabilities of deals with negative acquirer announcement returns. Furthermore, deals with high institutional cross-ownership have lower transaction costs and disclose more transparent financial statement information. The effect of cross-ownership on the total deal synergies and post-deal long-term performance is positive, which can be attributed to independent and non-transient cross-owners. Our findings are robust after mitigating the cross-ownership asymmetry concern. Overall, our results suggest that the growth of institutional cross-holdings in U.S. stock markets may greatly change corporate strategies and decision-making processes.

Keywords: Institutional Investors; Cross-ownership; Mergers and Acquisitions

JEL Classification: G34; G23

Suggested Citation

Brooks, Chris and Chen, Zhong and Zeng, Yeqin, Institutional Cross-Ownership and Corporate Strategy: The Case of Mergers and Acquisitions (November 8, 2017). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2747036 or http://dx.doi.org/10.2139/ssrn.2747036

Chris Brooks

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Zhong Chen

King's Business School, King's College London ( email )

Bush House
London, WC2B 4BG
United Kingdom

Yeqin Zeng (Contact Author)

Durham University Business School, Finance and Economics ( email )

Office 162 Durham University Business School
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

HOME PAGE: http://https://sites.google.com/site/yeqinzenghomepage/

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