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Pre-emptive horizontal mergers: theory and evidence

  • Molnar, Jozsef

    ()

    (Bank of Finland Research)

This paper proposes and tests an explanation as to why rational managers seeking to maximize shareholder value can pursue value-decreasing mergers. It can be optimal to overpay for a target firm and decrease shareholder value if the loss is less than in an alternative where the merger is undertaken by a product market rival. This paper presents a model based on synergies, market power and competition for merger targets. Consistent with the model the empirical results obtained here show a strong correlation between the returns of acquiring firms and close rivals around merger events.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0717netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 17/2007.

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Length: 37 pages
Date of creation: 11 Oct 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_017
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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