Coordinated Monitoring and Mergers and Acquisitions

Abstract

This paper shows that coordinated monitoring by institutional investors affects how firms behave in the M&A market. We employ the spatial dimension of geographic links between major institutions as a proxy for interaction and information exchange—a process that determines the effectiveness of investor monitoring over firm management. Using data over the last 30 years, we show that the returns to acquiring shareholders are significantly higher, and M&A activity is significantly more intense when institutions coordinate better their monitoring efforts. Our results are robust to series of tests to gauge their sensitivity to different model specifications and estimation procedures.

Note: © 2023 The Authors. European Financial Management published by John Wiley & Sons Ltd.

Keywords: M&A, mergers and acquisitions, institutional investor, monitoring

JEL Classification: G34, G3, G