Deal Initiation in Mergers and Acquisitions

Ronald Masulis and Serif Aziz Simsir

Journal of Financial and Quantitative Analysis, 2018, vol. 53, issue 6, 2389-2430

Abstract: We investigate the effects of target initiation in M&As. We find target-initiated deals are common and that important motives for these deals are target economic weakness, financial constraints, and negative economy-wide shocks. We determine that average takeover premia, target abnormal returns around merger announcements, and deal value to EBITDA multiples are significantly lower in target-initiated deals. This gap is not explained by weak target financial conditions. Adjusting for self-selection, we conclude that target managers’ private information is a major driver of lower premia in target-initiated deals. This gap widens as information asymmetry between merger partners rises.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:53:y:2018:i:06:p:2389-2430_00

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