How Are Firms Sold? The Role of Common Ownership

55 Pages Posted: 10 Oct 2019 Last revised: 23 Aug 2021

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: August 20, 2021

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

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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