Working Paper: CEPR ID: DP6434
Authors: Marc Ivaldi; Jrissy Motis
Abstract: Most empirical studies that evaluate motives and gains in M&A conclude that acquirers at best do not lose from the deal while targets obtain positive gains. With a database containing merging firms? characteristics and final bids, we propose a structural approach to infer acquirers? gains from merging by interpreting a merger as an auction. Using nonparametric methods, we estimate bidders? private values for targets and informational rents. We provide evidence of significant and positive merging gains. Moreover, investigating for the source of bidders? private valuation and informational rents, our empirical analysis supports the synergy hypothesis as a motive in horizontal mergers.
Keywords: auctions; corporate finance; event studies; merger
JEL Codes: C14; G14; G34; L10; L20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mergers interpreted as auctions (D44) | better understanding of gains to acquirers (G34) |
| private valuations of bidders (D44) | influenced by target's tangible and intangible assets (M30) |
| private valuations of bidders (D44) | influenced by complementarity of assets with acquirer (G34) |
| higher competition in auction (D44) | negatively impacts expected gains for acquirer (G34) |
| merging gains (F12) | measured through informational rents (D89) |
| gains from mergers (G34) | not solely attributable to external market factors (G19) |