Beyond the Target: M&A Decisions and Rival Ownership
54 Pages Posted: 18 Aug 2018 Last revised: 2 Feb 2020
Date Written: November 27, 2019
Diversified acquirer shareholders can profit from value-destroying acquisitions not only through their target stakes, but also through their stakes in non-merging rival firms. We find that announcement losses are largely mitigated for the average acquirer shareholder when accounting for wealth effects on their rival stakes. Close to a third of acquirer shareholders benefit from bad acquisitions at the industry portfolio level. Rival ownership by acquirer shareholders is negatively associated with acquirer CAR and deal synergies, while positively associated with the probability of bad deal completion. These results help explain why shareholders often lack incentives to monitor against value-destroying acquisitions.
Keywords: Common Ownership, Mergers and Acquisitions, Synergies, Institutional Investors
JEL Classification: G23, G30, G34
Suggested Citation: Suggested Citation