Pre-emptive horizontal mergers : theory and evidence

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Title: Pre-emptive horizontal mergers : theory and evidence
Author: Molnár, József
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
Series number: 17/2007
Year of publication: 2007
Publication date: 5.6.2007
Pages: 35 s.
Keywords: fuusiot; yrityskaupat; kilpailu; huutokaupat; yritykset;
JEL: G34; G14; D43; D44; L13
Abstract: This paper proposes and tests an explanation as to why rational managers seeking to maximize shareholder value can pursue value-decreasing mergers. It can be optimal to overpay for a target firm and decrease shareholder value if the loss is less than in an alternative where the merger is undertaken by a product market rival. This paper presents a model based on synergies, market power and competition for merger targets. Consistent with the model the empirical results obtained here show a strong correlation between the returns of acquiring firms and close rivals around merger events. Keywords: acquisitions, auction, event study, oligopoly, preemption JEL classification numbers: G34, G14, D43, D44, L13

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