Screening and Merger Activity

Albert Banal-Estanol (), Paul Heidhues (), Rainer Nitsche and Jo Seldeslachts ()
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Rainer Nitsche: European School of Management and Technology

No 270, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: In our paper targets, by setting a reserve price, screen acquirers on their (expected) ability to generate merger-specific synergies. Both empirical evidence and many common merger models suggest that the difference between high- and low-synergy mergers becomes smaller during booms. This implies that the target’s opportunity cost for sorting out rel- atively less fitting acquirers increases and, hence, targets screen less tightly during booms, which leads to a hike in merger activity. Our screening mechanism not only predicts that merger activity is intense during economic booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.

Keywords: Takeovers; Merger Waves; Defense Tactics; Screening (search for similar items in EconPapers)
JEL-codes: D21 D80 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-cta
Date: 2009-08
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