Work

The Real Effects of Financial Markets: The Impact of Prices on Takeovers

Year: 2012

Type: article

Abstract: ABSTRACT Using mutual fund redemptions as an instrument for price changes, we identify a strong effect of market prices on takeover activity (the “trigger effect”). An interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood, relative to a 6% unconditional takeover probability. Instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover (the “anticipation effect”). Our results overturn prior literature that finds a weak relation between prices and takeovers without instrumentation. These findings imply that financial markets have real effects: They impose discipline on managers by triggering takeover threats.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2012.01738.x

Authors: ALEX EDMANS, ITAY GOLDSTEIN, WEI JIANG

Institutions: Centre for Economic Policy Research, London Business School, University of Pennsylvania, National Bureau of Economic Research, Columbia University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2116905505

FWCI: 177.9

Cites: 79

Cited by: 677

Related to: 10