How Are Firms Sold? The Role of Common Ownership

63 Pages Posted: 10 Oct 2019 Last revised: 29 Sep 2022

See all articles by M. Vahid Irani

M. Vahid Irani

University of South Carolina - Darla Moore School of Business

Wenhao Yang

Chinese University of Hong Kong, Shenzhen

Feng Zhang

Southern Methodist University (SMU) - Finance Department

Date Written: September 29, 2021

Abstract

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

Irani, M. Vahid and Yang, Wenhao and Zhang, Feng, How Are Firms Sold? The Role of Common Ownership (August 20, 2021). Available at SSRN: https://ssrn.com/abstract=3461284 or http://dx.doi.org/10.2139/ssrn.3461284

M. Vahid Irani (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

HOME PAGE: http://sc.edu/study/colleges_schools/moore/directory/irani_mohammad.php

Wenhao Yang

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

Feng Zhang

Southern Methodist University (SMU) - Finance Department ( email )

SMU Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States

HOME PAGE: http://https://sites.google.com/view/fengzhangfin

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