Edmans, A, Goldstein, I and Jiang, W (2012) The real effects of financial markets: the impact of prices on takeovers. Journal of Finance, 67 (3). pp. 933-971. ISSN 0022-1082
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.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Date Deposited: | 17 May 2016 12:17 |
Last Modified: | 08 Oct 2024 02:01 |
URI: | https://lbsresearch.london.edu/id/eprint/402 |