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She is mine: Determinants and value effects of early announcements in takeovers

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  • Aktas, Nihat
  • Xu, Guosong
  • Yurtoglu, Burcin

Abstract

Some bidders voluntarily announce a merger negotiation before the definitive agreement. We propose an “announce-to-signal” explanation to these early announcements: they allow bidders to signal to target shareholders high synergies so as to overcome negotiation frictions and improve success rates. Consistent with signaling, we show that negotiation frictions predict earlier announcements. Early announced transactions are associated with higher expected synergies, offer premium, completion rates, and public competition. Moreover, bidder announcement returns do not suggest overpayment and the existence of agency issues in these transactions. Taken collectively, our findings rule out alternative explanations such as managerial learning from investors and jump bidding.

Suggested Citation

  • Aktas, Nihat & Xu, Guosong & Yurtoglu, Burcin, 2018. "She is mine: Determinants and value effects of early announcements in takeovers," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 180-202.
  • Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:180-202
    DOI: 10.1016/j.jcorpfin.2018.03.007
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    More about this item

    Keywords

    Mergers and acquisitions; Early announcement; Signal; Negotiation frictions;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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