Published online by Cambridge University Press: 08 November 2018
We investigate the effects of target initiation in M&As. We find target-initiated deals are common and that important motives for these deals are target economic weakness, financial constraints, and negative economy-wide shocks. We determine that average takeover premia, target abnormal returns around merger announcements, and deal value to EBITDA multiples are significantly lower in target-initiated deals. This gap is not explained by weak target financial conditions. Adjusting for self-selection, we conclude that target managers’ private information is a major driver of lower premia in target-initiated deals. This gap widens as information asymmetry between merger partners rises.
This study began as a part of Simsir’s Ph.D. dissertation at Cornell University. Simsir thanks his dissertation committee: Yaniv Grinstein, Yongmiao Hong, and especially his committee chair, Robert Masson. The paper has benefited from comments from an anonymous referee, Evrim Akdogu, Nihat Aktas (discussant at the 2008 AFFI conference), Jarrad Harford (the editor), Mark Humphery-Jenner, Koralai Kirabaeva, Rose Liao, Florencio Lopez-de-Silanes, Paul Malatesta (discussant at the 2013 CAFS conference), Roni Michaely, Harold Mulherin, Akin Sayrak, Henri Servaes (discussant at the 2015 Vanderbilt Law and Business Conference), Joshua Teitelbaum, and seminar and conference participants at the 2008 French Finance Association Annual Meeting, the 2008 EFMA Annual Meeting, the 2008 European Meeting of the Econometric Society, the 2008 EARIE Conference, the 2008 FMA Annual Meeting, the 2013 Chulalongkorn Accounting and Finance Symposium, the 2014 FIRN Corporate Finance Research Group Annual Meeting, the 2015 Vanderbilt Law and Business Conference, Sabanci University, Koc University, Cornerstone Research, Rutgers University, Singapore Management University, and the WHU Otto Beisheim School of Management. Simsir was supported by a Marie Curie International Reintegration Grant within the 7th European Community Framework Programme (grant number 256572).