Target signaling with material adverse change clauses in merger agreements

Antonio J. Macias and Thomas Moeller

Journal of Empirical Finance, 2016, vol. 39, issue PA, 69-92

Abstract: Material Adverse Change (MAC) clauses play key roles in essentially all merger negotiations. Fewer exclusions in MAC clauses imply broader abandonment options for acquirers. We study the motivation for different scopes of acquirers’ abandonment options. In our comprehensive hand-collected sample, broader firm-specific abandonment options are associated with higher target announcement returns and higher combined acquirer and target announcement gains, lower probabilities of MAC occurrences, and lower conditional completion rates when MACs occur. They are also more prevalent in higher-quality firms with larger information asymmetries. Overall, the results indicate that targets’ credibly signaling their higher values or greater synergies is one motivation for broader abandonment options for acquirers.

Keywords: Mergers; Acquisitions; Signaling; Material adverse change clauses; D86; G14; G32; G34 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539816301141
Full text for ScienceDirect subscribers only

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:eee:empfin:v:39:y:2016:i:pa:p:69-92

DOI: 10.1016/j.jempfin.2016.09.002

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().