Merger Failures

WZB, Markets and Political Economy Working Paper No. SP II 2005-09

38 Pages Posted: 15 May 2005

See all articles by Albert Banal-Estañol

Albert Banal-Estañol

Universitat Pompeu Fabra - Department of Economics and Business (DEB); City University London - Department of Economics

Jo Seldeslachts

KU Leuven - Faculty of Business and Economics (FEB); German Institute for Economic Research (DIW Berlin)

Date Written: April 2005

Abstract

This paper proposes an explanation as to why some mergers fail, based on the interaction between the pre-merger gathering of information and the postmerger integration processes. Rational managers acting in the interest of shareholders may still lead their firms into unsuccessfully integrated companies. Firms may agree to merge and may abstain from putting forth integration efforts, counting on the partners to adapt. We explain why mergers among partners with closer corporate cultures can have a lower success rate and why failures should be more frequent during economic booms, consistent with the empirical evidence. Our setup is a global game (integration process) in which players decide whether to participate (merger decision). We show that private signals need to be noisy enough in order to ensure equilibrium uniqueness.

Keywords: Mergers, synergies, information, uncertainty, organizational culture

JEL Classification: D74, D82, L20, M14

Suggested Citation

Banal Estañol, Albert and Seldeslachts, Jo, Merger Failures (April 2005). WZB, Markets and Political Economy Working Paper No. SP II 2005-09, Available at SSRN: https://ssrn.com/abstract=721481 or http://dx.doi.org/10.2139/ssrn.721481

Albert Banal Estañol

Universitat Pompeu Fabra - Department of Economics and Business (DEB) ( email )

Barcelona, 08005
Spain

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Jo Seldeslachts (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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