Financial Strategies in Mergers and Acquisitions (M&A): The Case of Regulated Firms

Helder Valente da Silva ()

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: In this paper, a general model of strategic behaviour of (regulated and non-regulated) firms in M&A is presented. For non-regulated firms, the model indicates that targeted firms issue new debt strategically. In this case, the firm's capital structure is chosen so that it maximizes the (ex-ante) market value of the firm. However, the focus of the paper is on regulated firms (mostly monopolies). For these firms, the model shows that managers, acting on behalf of shareholders, make their strategic decisions on debt issuing and investment, in anticipation of both the decisions of the regulatory body and the responses of financial markets. These decisions are aimed at influencing the probability that an acquisition occurs as well as the price the potential bidder will have to pay. However, such decisions are also made with a view to influencing the regulatory policies (maximum price or rate of return permitted), thereby mitigating the probability that, in the regulatory game, the regulator adopts an opportunistic behaviour. Application of these results to some real-world situations (such as regulated public utilities´companies) is straighforward.

Keywords: Mergers & Acquisitions; Capital and Ownership Structure; Economics of Regulation (search for similar items in EconPapers)
JEL-codes: G32 G34 L51 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2003-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.fep.up.pt/investigacao/cete/papers/dp0307.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.fep.up.pt/investigacao/cete/papers/dp0307.pdf [302 Found]--> https://fep.up.pt/investigacao/cete/papers/dp0307.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:por:cetedp:0307

Access Statistics for this paper

More papers in CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto Contact information at EDIRC.
Bibliographic data for series maintained by Ana Bonanca ().