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Screening and merger activity

Banal-Estanol, A., Heidhues, P., Nitsche, R. and Seldeslachts, J. (2010). Screening and merger activity. The Journal Of Industrial Economics, 58(4), pp. 794-817. doi: 10.1111/j.1467-6451.2010.00438.x

Abstract

In our paper, the target of a proposed merger, by setting a reserve price, is able to screen prospective acquirers according to their (expected) ability to generate merger-specific synergies. Both empirical evidence and many merger models suggest that the difference between high and low-synergy mergers becomes smaller during booms. Thus, a target's opportunity cost for sorting out relatively less fitting acquirers increases and, hence, targets screen less tightly during booms, which leads to a hike in merger activity. Our screening mechanism not only predicts that merger activity is intense during booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: BANAL-ESTAÑOL, A., HEIDHUES, P., NITSCHE, R. and SELDESLACHTS, J. (2010), SCREENING AND MERGER ACTIVITY*. The Journal of Industrial Economics, 58: 794–817., which has been published in final form at http://dx.doi.org/10.1111/j.1467-6451.2010.00438.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Arts & Social Sciences > Economics
URI: http://openaccess.city.ac.uk/id/eprint/15863
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