Wednesday, September 9, 2009
Posted by D. Daniel Sokol
Albert Banal-Estanol (City University of London and Universitat Pompeu Fabra), Paul Heidhues (University of Bonn), Rainer Nitsche (European School of Management and Technology), and Jo Seldeslachts (University of Amsterdam and WZB) analyze Screening and Merger Activity.
ABSTRACT: In our paper targets, by setting a reserve price, screen acquirers on their (expected) ability to generate merger-speciﬁc synergies. Both empirical evidence and many common merger models suggest that the diﬀerence between high- and low-synergy mergers becomes smaller during booms. This implies that the 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 economic booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.