Research Discussion Papers, Bank of Finland
Pre-emptive horizontal mergers: theory and evidence
Abstract: This paper proposes and tests an explanation as to why
rational managers seeking to maximize shareholder value can pursue
value-decreasing mergers. It can be optimal to overpay for a target firm
and decrease shareholder value if the loss is less than in an alternative
where the merger is undertaken by a product market rival. This paper
presents a model based on synergies, market power and competition for
merger targets. Consistent with the model the empirical results obtained
here show a strong correlation between the returns of acquiring firms and
close rivals around merger events.
Keywords: acquisitions; auction; event study; oligopoly; preemption; (follow links to similar papers)
JEL-Codes: D43; D44; G14; G34; L13; (follow links to similar papers)
37 pages, October 11, 2007
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