Disentangling Target Motives and Bidders’ Selection of Targets in M&A

Washington Area Research Symposium Paper 2017

AAA Annual Meeting Paper 2017

55 Pages Posted: 25 Aug 2017 Last revised: 11 Jan 2023

See all articles by Jenny Zha Giedt

Jenny Zha Giedt

George Washington University - School of Business

Date Written: December 20, 2022

Abstract

Using a unique sample of firms that volitionally seek a sale or merger, I explore target firm motives and bidders’ selection of targets. I find that potential target firms have recent poor performance and high leverage, yet their corporate governance features, namely the presence of blockholders and golden parachutes, appear to incentivize the firms to seek a transaction. Subsequently, the subset of firms that receive bids have relatively better growth prospects and performance and lower market risk. The insights from separately modeling this two-step selection process are not obtained when predicting takeover targets using a one-step modelUsing a unique sample of firms that volitionally seek a sale or merger, I explore target firm motives and bidders’ selection of targets. I find that potential target firms have recent poor performance and high leverage, yet their corporate governance features, namely the presence of blockholders and golden parachutes, appear to incentivize the firms to seek a transaction. Subsequently, the subset of firms that receive bids have relatively better growth prospects and performance and lower market risk. The insights from separately modeling this two-step selection process are not obtained when predicting takeover targets using a one-step model.

Keywords: strategic alternatives; mergers and acquisitions; takeovers; target motives; target selection

JEL Classification: D84, G34

Suggested Citation

Zha Giedt, Jenny, Disentangling Target Motives and Bidders’ Selection of Targets in M&A (December 20, 2022). Washington Area Research Symposium Paper 2017, AAA Annual Meeting Paper 2017, Available at SSRN: https://ssrn.com/abstract=3024398 or http://dx.doi.org/10.2139/ssrn.3024398

Jenny Zha Giedt (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

HOME PAGE: http://www.jennyzha.com

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