How Are Firms Sold? The Role of Common Ownership

We study the role of common owners in the firm sale process. We find that one common owner among potential acquirers raises the likelihood that the target firm is sold through auction (vs. negotiation with one buyer) by 21.5% and increases acquirer-target combined announcement returns by 4.2% and acquirer announcement returns by 4.4%. Common ownership does not affect target announcement returns or the bid premium. The presence of common owners among acquirers appears to enhance rather than hinder competition in the firm sale process, consistent with the hypothesis that selling firms can prevent/counteract the anti-competitive effects of common owners.

Keywords: common ownership, auction, negotiation, mergers and acquisitions

JEL Classification: D44, G34, L41

Suggested Citation: Suggested Citation

Irani, M. Vahid and Yang, Wenhao and Zhang, Feng, How Are Firms Sold? The Role of Common Ownership (February 3, 2023). Available at SSRN: https://ssrn.com/abstract=3461284 or http://dx.doi.org/10.2139/ssrn.3461284