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Merger Failure and Merger Profitability

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  • Hviid, Morten
  • Prendergast, Canice

Abstract

The focus of this paper is the effect of merger proposals on the expected profitability of the bidder and the target. The authors illustrate how an unsuccessful bid may increase the profitability of the target but reduce the profitability of the bidding firm, relative to the profitability of the firms before the merger offer. The profitability of a merger proposal is lowered due to learning from rejection. The authors use their theoretical model to explain empirical work on this issue. Copyright 1993 by Blackwell Publishing Ltd.

Suggested Citation

  • Hviid, Morten & Prendergast, Canice, 1993. "Merger Failure and Merger Profitability," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 371-386, December.
    • Handle: RePEc:bla:jindec:v:41:y:1993:i:4:p:371-86
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    Citations

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    Cited by:

    1. Gärtner, Dennis L. & Schmutzler, Armin, 2009. "Merger negotiations and ex-post regret," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1636-1664, July.
    2. Frank Stähler, 2014. "Partial ownership and cross-border mergers," Journal of Economics, Springer, vol. 111(3), pages 209-237, April.
    3. Albert Banal‐Estañol & Jo Seldeslachts, 2011. "Merger Failures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 589-624, June.
    4. Onur A. Koska & Frank Stähler, 2014. "Optimal Acquisition Strategies in Unknown Territories," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(3), pages 406-426, September.
    5. Onur A. Koska, 2016. "A Consumer-Surplus Standard in Merger Approvals, Foreign Direct Investment, and Welfare," ERC Working Papers 1612, ERC - Economic Research Center, Middle East Technical University, revised Oct 2016.
    6. Schmutzler, Armin & Bühler, Stefan & Borek, Thomas, 2003. "Weddings with Uncertain Prospects - Mergers under Asymmetric Information," CEPR Discussion Papers 3839, C.E.P.R. Discussion Papers.
    7. Thomas Borek & Stefan Buehler & Armin Schmutzler, 2004. "Mergers under Asymmetric Information � Is there a Lemons Problem?," SOI - Working Papers 0408, Socioeconomic Institute - University of Zurich.
    8. Terrill L. Frantz, 2018. "The meso-unit theory of post-merger integration," Computational and Mathematical Organization Theory, Springer, vol. 24(1), pages 99-111, March.
    9. Hankir, Yassin & Rauch, Christian & Umber, Marc P., 2011. "Bank M&A: A market power story?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2341-2354, September.
    10. Thomas Borek & Stefan Buehler & Armin Schmutzler, 2002. "Weddings with Uncertain Prospects � Mergers under Asymmetric Information," SOI - Working Papers 0213, Socioeconomic Institute - University of Zurich, revised Feb 2004.
    11. Thomas Borek & Stefan Bühler & Armin Schmutzler, 2008. "Analyzing Mergers under Asymmetric Information: A Simple Reduced-Form Approach," University of St. Gallen Department of Economics working paper series 2008 2008-15, Department of Economics, University of St. Gallen.

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