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Common institutional ownership and mergers and acquisitions outcomes

Common institutional ownership and mergers and acquisitions outcomes Institutional owners frequently invest in a diversified portfolio of firms to avoid firm-specific risks. I investigate the particular scenario in which the institutional owners have shares in both the acquiring and the acquired target firms of an M&A deal. Using a quasi-experimental approach, I find that the acquirer pays less premium and performs better after the M&A effectiveness when the ratio between the value owned by common institutional shareholders in the acquirer and the value held by the same shareholders in the target firm is higher. The value paid is higher, and the performance worsens when this ratio is lower. The results suggest the common institutional owners can obtain benefits from promoting and implementing such M&A deals as a secondary compensation for their lack of control, usually at the expense of the controlling shareholders. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Common institutional ownership and mergers and acquisitions outcomes

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References (64)

Publisher
Springer Journals
Copyright
Copyright © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2023. Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
ISSN
0924-865X
eISSN
1573-7179
DOI
10.1007/s11156-023-01134-7
Publisher site
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Abstract

Institutional owners frequently invest in a diversified portfolio of firms to avoid firm-specific risks. I investigate the particular scenario in which the institutional owners have shares in both the acquiring and the acquired target firms of an M&A deal. Using a quasi-experimental approach, I find that the acquirer pays less premium and performs better after the M&A effectiveness when the ratio between the value owned by common institutional shareholders in the acquirer and the value held by the same shareholders in the target firm is higher. The value paid is higher, and the performance worsens when this ratio is lower. The results suggest the common institutional owners can obtain benefits from promoting and implementing such M&A deals as a secondary compensation for their lack of control, usually at the expense of the controlling shareholders.

Journal

Review of Quantitative Finance and Accounting – Springer Journals

Published: May 1, 2023

Keywords: Merger and acquisitions; Institutional owners; Performance; Insider information; G34

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