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Stock Market Driven Acquisitions

  • Andrei Shleifer
  • Robert W. Vishny

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.

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File URL: http://www.nber.org/papers/w8439.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8439.

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Date of creation: Aug 2001
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Publication status: published as Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December.
Handle: RePEc:nbr:nberwo:8439
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  28. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August.
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