IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v41y2014i1-2p210-241.html
   My bibliography  Save this article

Effective Post-Signing Market Check or Window Dressing? The Role of Go-Shop Provisions in M&A Transactions

Author

Listed:
  • Jin Q Jeon
  • Cheolwoo Lee

Abstract

This paper examines the use of go-shop provisions in M&A. We find that go-shop deals tend to have higher deal premiums and receive more competing bids while the length of the go-shop period does not affect deal premium and competition. Also, deals are less likely to be completed when a go-shop provision is included and when the go-shop length is longer. However, go-shops have no effect on the completion of high premium deals. We also find that the presence of a go-shop provision leads to a positive market reaction to deal announcements. Overall, our findings support the proposition that go-shops reflect the efforts of target managers to fulfill the Revlon duties in the form of a post-signing market check, which is consistent with stewardship theory.

Suggested Citation

  • Jin Q Jeon & Cheolwoo Lee, 2014. "Effective Post-Signing Market Check or Window Dressing? The Role of Go-Shop Provisions in M&A Transactions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 210-241, January.
    • Handle: RePEc:bla:jbfnac:v:41:y:2014:i:1-2:p:210-241
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/jbfa.12048
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mark A. Fox & Robert T. Hamilton, 1994. "Ownership And Diversification: Agency Theory Or Stewardship Theory," Journal of Management Studies, Wiley Blackwell, vol. 31(1), pages 69-81, January.
    2. Jeon, Jin Q. & Ligon, James A., 2011. "How much is reasonable? The size of termination fees in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 959-981, September.
    3. Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 121-144, Spring.
    4. Yeon-Koo Che & Tracy R. Lewis, 2007. "The role of lockups in takeover contests," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 648-669, September.
    5. Jie Cai & Anand M. Vijh, 2007. "Incentive Effects of Stock and Option Holdings of Target and Acquirer CEOs," Journal of Finance, American Finance Association, vol. 62(4), pages 1891-1933, August.
    6. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, vol. 46(4), pages 931-959, July.
    7. Giammarino, Ronald M & Heinkel, Robert L, 1986. "A Model of Dynamic Takeover Behavior," Journal of Finance, American Finance Association, vol. 41(2), pages 465-480, June.
    8. G. William Schwert, 2000. "Hostility in Takeovers: In the Eyes of the Beholder?," Journal of Finance, American Finance Association, vol. 55(6), pages 2599-2640, December.
    9. Wallace N. Davidson III & Louis T.W. Cheng, 1997. "Target Firm Returns: Does the Form of Payment Affect Abnormal Returns?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(3), pages 465-479, April.
    10. DeAngelo, Harry & Rice, Edward M., 1983. "Antitakeover charter amendments and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 329-359, April.
    11. Paul André & Samer Khalil & Michel Magnan, 2007. "Termination Fees in Mergers and Acquisitions: Protecting Investors or Managers?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 541-566, April.
    12. Andrei Shleifer & Robert W. Vishny, 1986. "Greenmail, White Knights, and Shareholders' Interest," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 293-309, Autumn.
    13. Hansen, Robert G, 1987. "A Theory for the Choice of Exchange Medium in Mergers and Acquisitions," The Journal of Business, University of Chicago Press, vol. 60(1), pages 75-95, January.
    14. Lex Donaldson & James H. Davis, 1991. "Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns," Australian Journal of Management, Australian School of Business, vol. 16(1), pages 49-64, June.
    15. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    16. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    17. Moeller, Thomas, 2005. "Let's make a deal! How shareholder control impacts merger payoffs," Journal of Financial Economics, Elsevier, vol. 76(1), pages 167-190, April.
    18. Berkovitch, Elazar & Bradley, Michael & Khanna, Naveen, 1989. "Tender Offer Auctions, Resistance Strategies, and Social Welfare," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(2), pages 395-412, Fall.
    19. Wallace N. Davidson III & Louis T.W. Cheng, 1997. "Target Firm Returns: Does the Form of Payment Affect Abnormal Returns?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(3), pages 465-479.
    20. Berkovitch, Elazar & Khanna, Naveen, 1990. "How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers," Journal of Finance, American Finance Association, vol. 45(1), pages 137-156, March.
    21. Travlos, Nickolaos G, 1987. "Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns," Journal of Finance, American Finance Association, vol. 42(4), pages 943-963, September.
    22. Hien Thu Nguyen & Kenneth Yung & Qian Sun, 2012. "Motives for Mergers and Acquisitions: Ex-Post Market Evidence from the US," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 39(9-10), pages 1357-1375, November.
    23. Perry, Susan E. & Williams, Thomas H., 1994. "Earnings management preceding management buyout offers," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 157-179, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mirosław Wasilewski & Serhiy Zabolotnyy & Dmytro Osiichuk, 2021. "Characteristics and Shareholder Wealth Effects of Mergers and Acquisitions Involving European Renewable Energy Companies," Energies, MDPI, vol. 14(21), pages 1-20, November.
    2. Antoniades, Adonis & Calomiris, Charles W. & Hitscherich, Donna M., 2016. "No free shop: Why target companies sometimes choose not to buy ‘go-shop’ options," Journal of Economics and Business, Elsevier, vol. 88(C), pages 36-64.
    3. Ralf Bebenroth & Kashif Ahmed, 2021. "Japanese firms' overpayments for cross‐border acquisitions," International Finance, Wiley Blackwell, vol. 24(2), pages 257-273, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carline, Nicholas F. & Linn, Scott C. & Yadav, Pradeep K., 2014. "Corporate governance and the nature of takeover resistance," CFR Working Papers 14-01, University of Cologne, Centre for Financial Research (CFR).
    2. Cho, Hyejin & Ahn, He Soung, 2017. "Stock payment and the effects of institutional and cultural differences: A study of shareholder value creation in cross-border M&As," International Business Review, Elsevier, vol. 26(3), pages 461-475.
    3. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    4. Dahya, Jay & Golubov, Andrey & Petmezas, Dimitris & Travlos, Nickolaos G., 2019. "Governance mandates, outside directors, and acquirer performance," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 218-238.
    5. Saad Alnahedh & Bader Alhashel, 2021. "Political ideology in M&A," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1711-1746, October.
    6. Chen, Sheng-Syan & Chou, Robin K. & Lee, Yun-Chi, 2011. "Bidders' strategic timing of acquisition announcements and the effects of payment method on target returns and competing bids," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2231-2244, September.
    7. Jaffe, Jeffrey & Jindra, Jan & Pedersen, David & Voetmann, Torben, 2015. "Returns to acquirers of public and subsidiary targets," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 246-270.
    8. Robert W. Faff & Abeyratna Gunasekarage & Syed M. M. Shams, 2020. "Does takeover competition affect acquisition choices and bidding firm performance? Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3581-3619, December.
    9. Li, Yuanzhi, 2018. "Dissecting bidder security returns on payment methods," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 207-220.
    10. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    11. Martin Bugeja & Raymond Da Silva Rosa, 2010. "Capital gains taxation and shareholder wealth in takeovers," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(2), pages 241-262, June.
    12. Pham, Nga & Oh, K.B. & Pech, Richard, 2015. "Mergers and acquisitions: CEO duality, operating performance and stock returns in Vietnam," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 298-316.
    13. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.
    14. Vijh, Anand M. & Yang, Ke, 2013. "Are small firms less vulnerable to overpriced stock offers?," Journal of Financial Economics, Elsevier, vol. 110(1), pages 61-86.
    15. Dennis, Steven A. & Wang, Song & Zhang, Yilei, 2021. "Debt Issues around Mergers & Acquisitions," Research in International Business and Finance, Elsevier, vol. 58(C).
    16. Alexandridis, G. & Antypas, N. & Travlos, N., 2017. "Value creation from M&As: New evidence," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 632-650.
    17. Basnet, Anup & Davis, Frederick & Walker, Thomas & Zhao, Kun, 2021. "The effect of securities class action lawsuits on mergers and acquisitions," Global Finance Journal, Elsevier, vol. 48(C).
    18. Carroll, Carolyn & Griffith, John M., 2010. "Toeholds, rejected offers, and bidder gains: Do rebuffed bidders put targets in play to profit from their toeholds?," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(2), pages 214-221, May.
    19. Leledakis, George & Mamatzakis, Emmanuel & Pirgiotakis, Manos & Travlos, Nikolaos, 2017. "What twenty years of regulations have to say about M&As of U.S. banks?," MPRA Paper 82977, University Library of Munich, Germany.
    20. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:41:y:2014:i:1-2:p:210-241. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.