Common institutional ownership and mergers and acquisitions outcomes

Fan Xia
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Fan Xia: ESC [Rennes] - ESC Rennes School of Business

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Abstract: Institutional owners frequently invest in a diversified portfolio of firms to avoid firm-specific risks. I investigate the particular scenario in which the institutional owners have shares in both the acquiring and the acquired target firms of an M&A deal. Using a quasi-experimental approach, I find that the acquirer pays less premium and performs better after the M&A effectiveness when the ratio between the value owned by common institutional shareholders in the acquirer and the value held by the same shareholders in the target firm is higher. The value paid is higher, and the performance worsens when this ratio is lower. The results suggest the common institutional owners can obtain benefits from promoting and implementing such M&A deals as a secondary compensation for their lack of control, usually at the expense of the controlling shareholders.

Date: 2023-05
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Published in Review of Quantitative Finance and Accounting, 2023, 60 (4), pp.1429-1449. ⟨10.1007/s11156-023-01134-7⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04100360

DOI: 10.1007/s11156-023-01134-7

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