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Merger failures

This paper proposes an explanation as to why some mergers fail, based on the interaction between the pre- and post-merger processes. We argue that failure may stem from informational asymmetries arising from the pre-merger period, and problems of cooperation and coordination within recently merged firms. We show that a partner may optimally agree to merge and abstain from putting forth any post-merger effort, counting on the other partner to make the necessary efforts. If both follow the same course of action, the merger goes ahead but fails. Our unique equilibrium allows us to make predictions on which mergers are more likely to fail.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1192.

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Date of creation: Jun 2009
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Handle: RePEc:upf:upfgen:1192
Contact details of provider: Web page: http://www.econ.upf.edu/

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