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Abstract

In our paper targets, by setting a reserve price, screen acquirers on their (expected) ability to generate merger-speci?c synergies. Both empirical evidence and many common merger models suggest that the di?erence between high- and low-synergy mergers becomes smaller during booms. This implies that the target’s opportunity cost for sorting out relatively less ?tting acquirers increases and, hence, targets screen less tightly during booms, which leads to a hike in merger activity. Our screening mechanism not only predicts that merger activity is intense during economic booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.

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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 58 (2010)
Issue (Month): 4 (December)
Pages: 794-817

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Handle: RePEc:bla:jindec:v:58:y:2010:i:4:p:794-817

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Find related papers by JEL classification:

• D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
• D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
• L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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Cited by:

1. Clougherty, Joseph A. & Seldeslachts, Jo, 2012. "The deterrence effects of U.S. merger policy instruments," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/350833, Katholieke Universiteit Leuven.
   
   • Clougherty, Joseph A. & Seldeslachts, Jo, 2011. "The Deterrence Effects of U.S. Merger Policy Instruments," CEPR Discussion Papers 8482, C.E.P.R. Discussion Papers.
   • Joseph A. Clougherty & Jo Seldeslachts, 2011. "The Deterrence Effects of U.S. Merger Policy Instruments," Tinbergen Institute Discussion Papers 11-095/1, Tinbergen Institute.

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