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Termination Fees in Mergers and Acquisitions: Protecting Investors or Managers?
Author(s) -
André Paul,
Khalil Samer,
Magnan Michel
Publication year - 2007
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2007.02032.x
Subject(s) - mergers and acquisitions , business , monetary economics , cash , agency cost , stock (firearms) , agency (philosophy) , finance , accounting , financial system , economics , shareholder , mechanical engineering , corporate governance , philosophy , epistemology , engineering
Institutional investors closely monitor termination fees in mergers and acquisitions (M&A). We argue that their magnitude reflects either agency problems or efficiency considerations. Focusing on M&A involving Canadian targets between 1997 and 2004, we assess the determinants and market impact of termination fees. Our findings show that the Thomson's SDC Platinum™ Worldwide Mergers & Acquisitions Database underestimates their extent. Results suggest that termination fees are essentially an efficient mechanism as they are relatively higher in M&A with high merger costs, a cash component and expected operating synergies. Stock market returns surrounding the deal announcement do not differ across levels of relative termination fees.