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SCREENING AND MERGER ACTIVITY *
Author(s) -
BANALESTAÑOL ALBERT,
HEIDHUES PAUL,
NITSCHE RAINER,
SELDESLACHTS JO
Publication year - 2010
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2010.00438.x
Subject(s) - stylized fact , boom , sorting , recession , monetary economics , economics , econometrics , business , computer science , environmental science , macroeconomics , programming language , environmental engineering
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.