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Stock Market Driven Acquisitions

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  • Andrei Shleifer
  • Robert W. Vishny

Abstract

We present a model of mergers and acquisitions based on stock market misvaluations of the combining firms. The key ingredients of the model are the relative valuations of the merging firms, the horizons of their respective managers, and the market's perception of the synergies from the combination. The model explains who acquirers whom, whether the medium of payment is cash or stock, what are the valuation consequences of mergers, and why there are merger waves. The model is consistent with available empirical findings about characteristics and returns of merging firms, and yields new predictions as well.

Suggested Citation

  • Andrei Shleifer & Robert W. Vishny, 2001. "Stock Market Driven Acquisitions," NBER Working Papers 8439, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8439
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    JEL classification:

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

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