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Do Institutional Investors Process and Act on Information? Evidence from M&A Targets

Author

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  • Kirak Kim
  • Ellie Luu
  • Fangming Xu

Abstract

We document important links between targets’ institutional ownership and takeover-bid outcomes. Firms’ institutional ownership increases the likelihood of receiving stock-for-stock bids. The impact becomes stronger when information asymmetries are higher, whereas we find little support for alternative channels, such as bidder misvaluation or target-side adverse selection. The information channel is further buttressed in our analyses of institutions’ share-retention decisions, targets’ demand for top-tier advisors, collar provisions, and targets’ share of expected synergies. Our findings suggest that institutions’ information advantage facilitates rational payment design and targets’ bargaining power gains, alleviating deadweight losses associated with stock-for-stock offers.

Suggested Citation

  • Kirak Kim & Ellie Luu & Fangming Xu, 2025. "Do Institutional Investors Process and Act on Information? Evidence from M&A Targets," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 14(2), pages 482-529.
    • Handle: RePEc:oup:rcorpf:v:14:y:2025:i:2:p:482-529.
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    More about this item

    Keywords

    G23; G32; G34;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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