Costly Renegotiation in Merger Deals
23 Pages Posted: 24 Feb 2020 Last revised: 25 Jan 2021
Date Written: December 20, 2020
We investigate costly renegotiation in large corporate mergers. We document that merger deals to be paid in cash tend to be renegotiated when the market rises, but cancelled when the market crashes, yet there are no such effects for deals to be paid in the acquiror's stock. These results are not explained by alternative mechanisms such as adverse selection or stock mispricing. Variation in renegotiation risk affects the market for corporate control, altering the method of payment, premium paid, and the rms that are targeted and acquired.
Keywords: mergers, acquisitions, completion, cancellation, market crashes, real effects, strategic default, method of payment, interim risk, definitive agreement
JEL Classification: G34, G30, K22
Suggested Citation: Suggested Citation