IDEAS home Printed from https://ideas.repec.org/p/trf/wpaper/270.html
   My bibliography  Save this paper

Screening and Merger Activity

Author

Listed:
  • Banal-Estanol, Albert
  • Heidhues, Paul
  • Nitsche, Rainer
  • Seldeslachts, Jo

Abstract

In our paper targets, by setting a reserve price, screen acquirers on their (expected) ability to generate merger-speci?c synergies. Both empirical evidence and many common merger models suggest that the di?erence between high- and low-synergy mergers becomes smaller during booms. This implies that the target’s opportunity cost for sorting out relatively less ?tting acquirers increases and, hence, targets screen less tightly during booms, which leads to a hike in merger activity. Our screening mechanism not only predicts that merger activity is intense during economic booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.

Suggested Citation

  • Banal-Estanol, Albert & Heidhues, Paul & Nitsche, Rainer & Seldeslachts, Jo, 2009. "Screening and Merger Activity," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 270, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:270
    as

    Download full text from publisher

    File URL: https://epub.ub.uni-muenchen.de/13282/1/270.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Inderst, Roman & Wey, Christian, 2004. "The incentives for takeover in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1067-1089, November.
    2. Cox, Alan J & Portes, Jonathan, 1998. "Mergers in Regulated Industries: The Uses and Abuses of Event Studies," Journal of Regulatory Economics, Springer, vol. 14(3), pages 281-304, November.
    3. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," CERS-IE WORKING PAPERS 0213, Institute of Economics, Centre for Economic and Regional Studies.
    4. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    5. Toxvaerd, Flavio, 2008. "Strategic merger waves: A theory of musical chairs," Journal of Economic Theory, Elsevier, vol. 140(1), pages 1-26, May.
    6. Ramon Fauli‐Oller, 2000. "Takeover Waves," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 189-210, June.
    7. Ramon Fauli‐Oller, 2000. "Takeover Waves," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(2), pages 189-210, June.
    8. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    9. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December.
    10. Boyan Jovanovic & Peter L. Rousseau, 2001. "Mergers and Technological Change: 1885-1998," Vanderbilt University Department of Economics Working Papers 0116, Vanderbilt University Department of Economics.
    11. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    12. Richard J. Rosen, 2006. "Merger Momentum and Investor Sentiment: The Stock Market Reaction to Merger Announcements," The Journal of Business, University of Chicago Press, vol. 79(2), pages 987-1017, March.
    13. Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, August.
    14. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    15. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    16. Loughran, Tim & Vijh, Anand M, 1997. "Do Long-Term Shareholders Benefit from Corporate Acquisitions?," Journal of Finance, American Finance Association, vol. 52(5), pages 1765-1790, December.
    17. Vojislav Maksimovic & Gordon Phillips, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
    18. Kwoka, John Jr., 1989. "The private profitability of horizontal mergers with non-Cournot and Maverick behavior," International Journal of Industrial Organization, Elsevier, vol. 7(3), pages 403-411.
    19. Dutz, Mark A., 1989. "Horizontal mergers in declining industries : Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 11-33, March.
    20. Randall A. Heron & Erik Lie, 2006. "On the Use of Poison Pills and Defensive Payouts by Takeover Targets," The Journal of Business, University of Chicago Press, vol. 79(4), pages 1783-1808, July.
    21. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
    22. Yoonsoo Lee, 2005. "The importance of reallocations in cyclical productivity and returns to scale: evidence from plant-level data," Working Papers (Old Series) 0509, Federal Reserve Bank of Cleveland.
    23. Sandro Brusco & Giuseppe Lopomo & David T. Robinson & S. Viswanathan, 2007. "Efficient Mechanisms For Mergers And Acquisitions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 995-1035, August.
    24. Matthew Rhodes‐Kropf & David T. Robinson, 2008. "The Market for Mergers and the Boundaries of the Firm," Journal of Finance, American Finance Association, vol. 63(3), pages 1169-1211, June.
    25. Bart M. Lambrecht & Stewart C. Myers, 2007. "A Theory of Takeovers and Disinvestment," Journal of Finance, American Finance Association, vol. 62(2), pages 809-845, April.
    26. Xavier Vives, 2002. "Private Information, Strategic Behavior, and Efficiency in Cournot Markets," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 361-376, Autumn.
    27. Houston, Joel F. & James, Christopher M. & Ryngaert, Michael D., 2001. "Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 285-331, May.
    28. Paul Povel & Rajdeep Singh, 2006. "Takeover Contests with Asymmetric Bidders," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1399-1431.
    29. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
    30. Sven-Olof Fridolfsson & Johan Stennek, 2005. "Why Mergers Reduce Profits And Raise Share Prices-A Theory Of Preemptive Mergers," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1083-1104, September.
    31. Robert H. McGuckin & Sang V. Nguyen, 1995. "On Productivity and Plant Ownership Change: New Evidence from the Longitudinal Research Database," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 257-276, Summer.
    32. Harford, Jarrad, 2005. "What drives merger waves?," Journal of Financial Economics, Elsevier, vol. 77(3), pages 529-560, September.
    33. Jay B. Barney, 1988. "Returns to bidding firms in mergers and acquisitions: Reconsidering the relatedness hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 9(S1), pages 71-78, June.
    34. Rhodes-Kropf, Matthew & Robinson, David T. & Viswanathan, S., 2005. "Valuation waves and merger activity: The empirical evidence," Journal of Financial Economics, Elsevier, vol. 77(3), pages 561-603, September.
    35. Eisfeldt, Andrea L. & Rampini, Adriano A., 2006. "Capital reallocation and liquidity," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 369-399, April.
    36. Boyan Jovanovic & Peter L. Rousseau, 2002. "The Q-Theory of Mergers," American Economic Review, American Economic Association, vol. 92(2), pages 198-204, May.
    37. Klaus Gugler & Dennis C. Mueller & B. Burçin Yurtoglu, 2006. "The Determinants of Merger Waves," CIG Working Papers SP II 2006-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    38. Matthew Rhodes-Kropf & S. Viswanathan, 2004. "Market Valuation and Merger Waves," Journal of Finance, American Finance Association, vol. 59(6), pages 2685-2718, December.
    39. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    40. Andrade, Gregor & Stafford, Erik, 2004. "Investigating the economic role of mergers," Journal of Corporate Finance, Elsevier, vol. 10(1), pages 1-36, January.
    41. Lambrecht, Bart M., 2004. "The timing and terms of mergers motivated by economies of scale," Journal of Financial Economics, Elsevier, vol. 72(1), pages 41-62, April.
    42. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
    43. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Scholarly Articles 30748164, Harvard University Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang Mingli & Zhang Yijie & Qin Simeng & Gong Juhong, 2022. "Empirical study on the impact of major asset restructuring on the price of sub‐new stocks in Chinese A‐shares," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1461-1472, January.
    2. Lien Duong, 2013. "Aggregate Australian Takeovers: A Review of Markov Regime Switching Models," International Review of Finance, International Review of Finance Ltd., vol. 13(4), pages 529-558, December.
    3. Joseph A. Clougherty & Jo Seldeslachts, 2013. "The Deterrence Effects of US Merger Policy Instruments," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(5), pages 1114-1144, October.
    4. Dertwinkel-Kalt, Markus & Wey, Christian, 2016. "Structural remedies as a signaling device," Information Economics and Policy, Elsevier, vol. 35(C), pages 1-6.
    5. Shekhar, Shiva & Wey, Christian, 2017. "Uncertain merger synergies, passive partial ownership, and merger control," DICE Discussion Papers 260, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Lien Duong & Izan H. Y. Izan, 2012. "Consequences of Riding Takeover Waves: A ustralian Evidence," International Review of Finance, International Review of Finance Ltd., vol. 12(4), pages 399-434, December.
    7. Loertscher, Simon & Marx, Leslie M., 2019. "Merger review with intermediate buyer power," International Journal of Industrial Organization, Elsevier, vol. 67(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Albert Banal-Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2006. "Merger Clusters during Economic Booms," CIG Working Papers SP II 2006-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Banal-Estanol, A. & Heidhues, P., 2006. "Merged clusters during economic booms," Working Papers 06/07, Department of Economics, City University London.
    3. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    4. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    5. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    6. Dirk Hackbarth & Jianjun Miao, "undated". "The Timing and Returns of Mergers and Acquisitions in Oligopolistic Industries," Boston University - Department of Economics - Working Papers Series wp2008-022, Boston University - Department of Economics.
    7. Pagnozzi, Marco & Rosato, Antonio, 2016. "Entry by takeover: Auctions vs. bilateral negotiations," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 68-84.
    8. repec:zbw:bofrdp:2007_017 is not listed on IDEAS
    9. Simonyan, Karen, 2014. "What determines takeover premia: An empirical analysis," Journal of Economics and Business, Elsevier, vol. 75(C), pages 93-125.
    10. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," CERS-IE WORKING PAPERS 0213, Institute of Economics, Centre for Economic and Regional Studies.
    11. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," CERS-IE WORKING PAPERS 0213, Institute of Economics, Centre for Economic and Regional Studies.
    12. Ray Sugata & Warusawitharana Missaka, 2009. "An Efficiency Perspective on the Gains from Mergers and Asset Purchases," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-27, October.
    13. Srdan Komlenovic & Abdullah Mamun & Dev Mishra, 2011. "Business cycle and aggregate industry mergers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 35(3), pages 239-259, July.
    14. Liu Yang, 2008. "The Real Determinants of Asset Sales," Journal of Finance, American Finance Association, vol. 63(5), pages 2231-2262, October.
    15. Levine, Oliver, 2017. "Acquiring growth," Journal of Financial Economics, Elsevier, vol. 126(2), pages 300-319.
    16. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    17. Dunn, Jessica Kay & Intintoli, Vincent J. & McNutt, Jamie John, 2015. "An examination of non-government-assisted US commercial bank mergers during the financial crisis," Journal of Economics and Business, Elsevier, vol. 77(C), pages 16-41.
    18. Mahdiyeh Entezarkheir & Saeed Moshiri, 2021. "Innovation spillover and merger decisions," Empirical Economics, Springer, vol. 61(5), pages 2419-2448, November.
    19. Farida Akhtar, 2016. "The probability of a firm making a takeover bid: An empirical analysis of Australian firms," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 27-54, February.
    20. Lien Duong & Izan H. Y. Izan, 2012. "Consequences of Riding Takeover Waves: A ustralian Evidence," International Review of Finance, International Review of Finance Ltd., vol. 12(4), pages 399-434, December.
    21. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Takeovers; Merger Waves; Defense Tactics; Screening;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:270. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tamilla Benkelberg (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.