Working Paper: NBER ID: w9009
Authors: Boyan Jovanovic; Serguey Braguinsky
Abstract: When a takeover is announced, the sum of the stock-market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet, upon news of a takeover, a target's price rises, the bidder's price falls, and, most of the time the joint value of the target and acquirer also falls.
Keywords: No keywords provided
JEL Codes: G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Announcement of a takeover (G34) | Target firm's price (D41) |
| Announcement of a takeover (G34) | Acquirer's price (G34) |
| Acquirer's value drop (G34) | Revelation of internal project quality (L15) |
| Target's price rise (D41) | Perception of favorable investment opportunities (G11) |
| Announcement of a takeover (G34) | Joint value of both firms (L29) |