Common Ownership and Competition in Mergers and Acquisitions

Abstract

We examine the impacts of common ownership on competition in the takeover market. We find that one common owner between the acquirer and potential competing acquirers reduces the likelihood that the target receives a competing bid by 45 percent. The common ownership effects are robust to a long battery of additional tests and are causal according to two identification strategies, one based on mergers between financial institutions that shock common ownership and the other based on lagged common ownership as an instrumental variable. Abated competition between potential acquirers leads to better acquisition deals with greater synergy gains, and enables the acquirer shareholders to obtain a larger share of the synergy gains.

Keywords: common ownership, competition, mergers and acquisitions, acquisition bids

JEL Classification: G34