Pre-emptive horizontal mergers: theory and evidence
Jozsef Molnar ()
No 17/2007, Bank of Finland Research Discussion Papers from Bank of Finland
This paper proposes and tests an explanation as to why rational managers seeking to maximize shareholder value can pursue value-decreasing mergers. It can be optimal to overpay for a target firm and decrease shareholder value if the loss is less than in an alternative where the merger is undertaken by a product market rival. This paper presents a model based on synergies, market power and competition for merger targets. Consistent with the model the empirical results obtained here show a strong correlation between the returns of acquiring firms and close rivals around merger events.
Keywords: acquisitions; auction; event study; oligopoly; preemption (search for similar items in EconPapers)
JEL-codes: D43 D44 G14 G34 L13 (search for similar items in EconPapers)
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Working Paper: Preemptive Horizontal Mergers: Theory and Evidence (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2007_017
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