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Corporate Takeovers and Economic Efficiency

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  • B. Espen Eckbo

    (Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755)

Abstract

I review recent takeover research that advances our understanding of “who buys who” in the drive for productive efficiency. This research provides detailed information on text-based definitions of product market links between bidders and targets, the role of the supply chain and industrial networks in driving takeovers, target plant efficiency, and pre- and post-takeover investment in product innovation. Moreover, recent evidence adds to our understanding of “how firms are sold” (transaction efficiency). Almost half of takeovers involving public targets are initiated by the seller and not by the buyer. Targets are strongly averse to bidder toeholds, and the merger negotiation process strongly protects proprietary information. Takeover premiums leave traces of rational bidding strategies, including bid preemption and winner’s curse avoidance. Recent tests employing exogenous instrumentation of bidder valuations reject that bidder shares are systematically overpriced in all-stock bids and suggest that bidder synergy gains are much larger than previously thought.

Suggested Citation

  • B. Espen Eckbo, 2014. "Corporate Takeovers and Economic Efficiency," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 51-74, December.
    • Handle: RePEc:anr:refeco:v:6:y:2014:p:51-74
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110112-120938
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    More about this item

    Keywords

    takeover; supply chain; innovation; bidding; deal terms; takeover gains;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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