How Are Firms Sold? The Role of Common Ownership

Abstract

We study how common ownership among potential acquirers influences the firm selling process. We find that, when potential acquirers share a common owner, the target firm is more likely to be sold through auction rather than negotiation with a single acquirer. The presence of common owner does not affect the firm’s selling price. The results are robust to alternative model specifications and are causal according to the instrumental variable analysis based on mergers between financial institutions. Our findings are consistent with the governance-enhancing role of common owners but inconsistent with the information-sharing and anti-competitive roles.

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

JEL Classification: D44, G34, L41