What Motivates Minority Acquisitions? The Trade-Offs between a Partial Equity Stake and Complete Integration

43 Pages Posted: 3 Mar 2007 Last revised: 12 Feb 2013

See all articles by Paige Ouimet

Paige Ouimet

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: October 20, 2012

Abstract

Minority acquisitions, involving less than 50% of the target, represent a distinct organizational choice. With a minority acquisition, the target can mitigate some of the incentive problems that arise in contractual relationships. Less is known, however, about the trade-off between minority acquisitions and complete integration. We find minority acquisitions are more common when keeping target managerial incentives intact is important and when the target is financially constrained or can benefit from certification. Minority acquisitions are also more likely where the target’s valuation is especially uncertain; integrating internal capital markets will be costly; and consolidating earning will lower EPS.

Keywords: mergers, minority acquisitions, stock-based incentives

JEL Classification: G32, G34

Suggested Citation

Ouimet, Paige, What Motivates Minority Acquisitions? The Trade-Offs between a Partial Equity Stake and Complete Integration (October 20, 2012). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=966700 or http://dx.doi.org/10.2139/ssrn.966700

Paige Ouimet (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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