How Are Firms Sold? The Role of Common Ownership
63 Pages Posted: 10 Oct 2019 Last revised: 29 Sep 2022
Date Written: September 29, 2021
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