Deal Initiation in Mergers and Acquisitions

Deal Initiation in Mergers and Acquisitions

Ronald Masulis, Serif Aziz Simsir

Series number :

Serial Number: 
371/2013

Date posted :

June 01 2012

Last revised :

December 03 2018
SSRN Share

Keywords

  • Mergers & Acquisitions • 
  • Merger Initiation • 
  • financial distress • 
  • FinancialConstraints • 
  • Industry and Economy shocks • 
  • Information Asymmetry • 
  • TakeoverPremiums • 
  • event study • 
  • Self-selection problem

We investigate the effects of target initiation in mergers and acquisitions. 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.

Published in

Published in: 
Publication Title: 
JFQA, Forthcoming

Authors

Real name: 
Serif Aziz Simsir
Research Member
School of Banking and Finance, Australian School of Business