Initiation of Merger and Acquisition Negotiation with Two-Sided Private Information

Chen, Yi; Wang, Zhe

doi:10.2139/ssrn.2662985

Cited by 3 publications

(2 citation statements)

References 28 publications

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“…Second, firms must make acquisition decisions in a timely manner, and withdrawal from a deal is often correlated with a large cost. This is because, unlike other types of investment decisions, such as R&D, that are mainly affected by the firm's own characteristics (Lai et al., 2015; Li, 2011), acquisition decisions are also influenced by target firm characteristics and the behaviors of other potential bidders (Audra & Mulherin, 2007; Boone & Mulherin, 2009; Y. Chen & Wang, 2015; Masulis & Simsir, 2018). Therefore, acquisition decisions cannot be delayed when opportunities arise because competing bidders will seize the high synergy targets.…”

Section: Introductionmentioning

confidence: 99%

Credit rating downgrade risk and acquisition decisions

Kang

2021

Business Fin & Account

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This study examines the impact of credit rating downgrade risk on acquisition decisions. I find that firms at risk of a rating downgrade conduct fewer acquisitions. This result is robust to different measures of downgrade risk, instrumental variable analyses and matched sample tests. The correlation between downgrade risk and acquisitionpropensity is likely driven by the concern that risks associated with acquisitions lead to downgrades as evidenced by the more cautious approach of acquirers facing downgrade risk. These firms take more time to complete deals, hire more and higher-quality financial advisors, issue less debt to finance merger consideration, adopt target termination fee clauses and select targets with lower information asymmetry and higher ratings. This more cautious approach is associated with better long-term post-merger performance and reduced future-downgrade risk. Subgroup analyses reveal credit rating downgrade risk is negatively associated with acquisition decisions and positively associated with performance for investment-grade firms, especially BBB-firms, which are on the brink of being downgraded to non-investment grade. Such associations are not significant for non-investment-grade firms. Overall, the results suggest that firms at risk of a rating downgrade conduct acquisitions more cautiously, leading to fewer but more value-creating deals.

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Section: Introductionmentioning

confidence: 99%

Credit rating downgrade risk and acquisition decisions

Kang

2021

Business Fin & Account

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“…being a bidder or target) is not explicitly addressed. Please refer toChen and Wang (2015) for a dynamic model where the initiation roles are endogenous.…”

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confidence: 99%

Bargaining merger terms and the effect on the announcement returns

Pereira

Rodrigues

2019

International Review of Economics & Finance

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This paper develops a dynamic model for the timing and terms of mergers. In contrast to other models, we show that firms agree about the timing independently from how the merger surplus is shared or their bargaining power. We show that, under asymmetry of information, the combination of surprises on the merger timing and the merger terms, can produce negative or positive abnormal announcement returns for the merging firms. The abnormal returns are also possible under perfect information, even if the announcements are expected by the market, and occur as a result of the event-study methodology.

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The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained

Gorbenko¹,

Malenko²

2017

The Review of Financial Studies

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Although acquisitions are a popular form of investment, the link between …rms' …nancial constraints and acquisition policies is not well understood. We develop a model in which …nancially constrained bidders approach targets, decide how much to bid and whether to bid in cash or in stock. In equilibrium, …nancial constraints do not a¤ect the identity of the winning bidder, but they lower bidders' incentives to approach the target. Auctions are initiated by bidders with low constraints or high synergies. The use of cash is positively related to synergies and the acquirer's gains from the deal and negatively to …nancial constraints. (D44, G32, G34) We are grateful to two anonymous referees;

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Initiation of Merger and Acquisition Negotiation with Two-Sided Private Information

Cited by 3 publications

References 28 publications

Credit rating downgrade risk and acquisition decisions

Credit rating downgrade risk and acquisition decisions

Bargaining merger terms and the effect on the announcement returns

The Timing and Method of Payment in Mergers when Acquirers Are Financially Constrained

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