Bargaining power and industry dependence in mergers

In contrast to the widely held belief that targets capture the lion's share of merger gains, I show that the average dollar gains to targets are only modestly more than the dollar gains to acquirers. To help explain the variation in merger outcomes, I present empirical evidence in support of a...

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Bibliographic Details
Published in:Journal of financial economics 2012-03, Vol.103 (3), p.530-550
Main Author: Ahern, Kenneth R.
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Bargaining
Capital gains
Commercial concentration
Corporate finance
Division of gains
Market economy
Mergers and acquisitions
Product management
Product market relations
Scarcity
Studies
Target company
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Summary:In contrast to the widely held belief that targets capture the lion's share of merger gains, I show that the average dollar gains to targets are only modestly more than the dollar gains to acquirers. To help explain the variation in merger outcomes, I present empirical evidence in support of a new hypothesis that a target's relative scarcity (proxied by its market power) and product market dependence (proxied by customer–supplier relations) help to explain its share of the total merger gains. These results provide new evidence for an unexplored role of product markets on bargaining outcomes in mergers.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2011.09.003