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Screening and Merger Activity

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Author Info
Albert Banal-Estanol (City University of London and Universitat Pompeu Fabra)
Paul Heidhues () (University of Bonn and CEPR)
Rainer Nitsche (European School of Management and Technology)
Jo Seldeslachts (University of Amsterdam and WZB)

Additional information is available for the following registered author(s):

Abstract

In our paper targets, by setting a reserve price, screen acquirers on their (expected) ability to generate merger-specific synergies. Both empirical evidence and many common merger models suggest that the difference between high- and low-synergy mergers becomes smaller during booms. This implies that the target’s opportunity cost for sorting out rel- atively less fitting 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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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number 270.

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Date of creation: Aug 2009
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Handle: RePEc:trf:wpaper:270

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Related research
Keywords: Takeovers; Merger Waves; Defense Tactics; Screening;

Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
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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