Journal article 229 views
Powerful bidders and value creation in M&As
Tanveer Hussain,
Tunyi Tunyi Abongeh,
Muhammad Sufyan 
,
Yasir Shahab
,
Yasir Shahab
International Review of Financial Analysis, Volume: 81, Start page: 102076
Swansea University Author: Tunyi Tunyi Abongeh
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DOI (Published version): 10.1016/j.irfa.2022.102076
Abstract
This paper explores the role of bargaining ability in corporate mergers and acquisitions (M&As) by focusing on acquiring firms with ex-ante market power—powerful bidders. Drawing from a bargaining power theoretical stance, we argue that powerful bidders create value from M&A activity by payi...
| Published in: | International Review of Financial Analysis |
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| ISSN: | 1057-5219 1873-8079 |
| Published: |
Elsevier BV
2022
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| Online Access: |
Check full text
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa65103 |
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| Abstract: |
This paper explores the role of bargaining ability in corporate mergers and acquisitions (M&As) by focusing on acquiring firms with ex-ante market power—powerful bidders. Drawing from a bargaining power theoretical stance, we argue that powerful bidders create value from M&A activity by paying comparatively lower premiums. We test our empirical proposition using a sample of 9327 M&A deals announced between 2004 and 2016 by bidders across 30 countries. Contrary to the stylized fact that bidders do not gain from M&A activity, we uncover evidence suggesting that powerful bidders pay lower bid premiums and, consequently, earn positive (and relatively higher) cumulative announcement returns (CARs) from M&A deals. On average, the mean returns to powerful bidders (1.3%) are at least twice those of their less powerful counterparts (0.6%). We identify “low financial constraints” as a potential channel through which higher bidder power translates to improved deal performance. Overall, our results provide new evidence on how industry dynamics, notably bargaining power, influences M&A outcomes. |
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| Keywords: |
Powerful bidders, Bargaining power, Takeover premium, Financial constraints |
| College: |
Faculty of Humanities and Social Sciences |
| Start Page: |
102076 |