 Inefficient mergersYelena Larkin and Evgeny Lyandres Journal of Banking & Finance, 2019, vol. 108, issue C Abstract: Although complementarity between products and/or technologies of bidders and targets is considered a key driver of M&A deals, many observed mergers are inefficient: Complementarity gains in actual mergers are lower than the gains that could have been obtained were the targets acquired by different bidders. In this paper we propose a possible reason for the existence of inefficient mergers, which is based on search and information frictions. Our model examines three such frictions: target’s obsolescence risk, difficulties in evaluating complementarity gains, and competitive interaction among potential bidders in output markets. We test the model’s predictions using two established measures of complementarity gains in mergers: product similarity and technological overlap. Both sets of tests indicate that the degree of inefficiency in observed M&As is related to targets’ and bidders’ characteristics in ways consistent with the model’s predictions. More generally, our results suggest that search and value discovery are important determinants of merger outcomes. Keywords: M&As; Complementarities; Product similarity; Technological overlap (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:108:y:2019:i:c:s0378426619302237 DOI: 10.1016/j.jbankfin.2019.105648 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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