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Why Do Private Acquirers Pay So Little Compared to Public Acquirers?

  • Bargeron, Leonce

    (U Pittsburgh)

  • Schlingemann, Frederick
  • Stulz, Rene

    (Ohio State U)

  • Zutter, Chad

    (U Pittsburgh)

We find that the announcement gain to target shareholders from acquisitions is significantly lower if a private firm instead of a public firm makes the acquisition. Non-operating firms like private equity funds make the majority of private bidder acquisitions. On average, target shareholders receive 55% more if a public firm instead of a private equity fund makes the acquisition. There is no evidence that the difference in premiums is driven by observable differences in targets. We find that target shareholder gains depend critically on the managerial ownership of the bidder. In particular, there is no difference in target shareholder gains between acquisitions made by public bidders with high managerial ownership and by private bidders. Such evidence suggests that the differences in managerial incentives between private and public firms have an important impact on target shareholder gains and that managers of firms with diffuse ownership may pay too much for acquisitions.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2007-8.

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Date of creation: May 2007
Date of revision:
Handle: RePEc:ecl:ohidic:2007-8
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  16. Lucian Bebchuk & Yaniv Grinstein, 2005. "Firm Expansion and CEO Pay," NBER Working Papers 11886, National Bureau of Economic Research, Inc.
  17. Jay C. Hartzell, 2004. "What's In It for Me? CEOs Whose Firms Are Acquired," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 37-61.
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