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Powerful bidders and value creation in M&As

Tanveer Hussain, Tunyi Tunyi Abongeh, Muhammad Sufyan Orcid Logo, Yasir Shahab Orcid Logo

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...

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Published in: International Review of Financial Analysis
ISSN: 1057-5219 1873-8079
Published: Elsevier BV 2022
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URI: https://cronfa.swan.ac.uk/Record/cronfa65103
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first_indexed 2023-11-26T10:33:52Z
last_indexed 2023-11-26T10:33:52Z
id cronfa65103
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spelling v2 65103 2023-11-26 Powerful bidders and value creation in M&amp;As eefe2792c8eed5b49feede33981dfa53 Tunyi Tunyi Abongeh Tunyi Tunyi Abongeh true false 2023-11-26 BAF 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. Journal Article International Review of Financial Analysis 81 102076 Elsevier BV 1057-5219 1873-8079 Powerful bidders, Bargaining power, Takeover premium, Financial constraints 31 5 2022 2022-05-31 10.1016/j.irfa.2022.102076 http://dx.doi.org/10.1016/j.irfa.2022.102076 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University Not Required 2024-01-02T16:45:50.4574171 2023-11-26T10:33:12.2242903 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Tanveer Hussain 1 Tunyi Tunyi Abongeh 2 Muhammad Sufyan 0000-0003-0941-4632 3 Yasir Shahab 0000-0001-5140-9453 4
title Powerful bidders and value creation in M&amp;As
spellingShingle Powerful bidders and value creation in M&amp;As
Tunyi Tunyi Abongeh
title_short Powerful bidders and value creation in M&amp;As
title_full Powerful bidders and value creation in M&amp;As
title_fullStr Powerful bidders and value creation in M&amp;As
title_full_unstemmed Powerful bidders and value creation in M&amp;As
title_sort Powerful bidders and value creation in M&amp;As
author_id_str_mv eefe2792c8eed5b49feede33981dfa53
author_id_fullname_str_mv eefe2792c8eed5b49feede33981dfa53_***_Tunyi Tunyi Abongeh
author Tunyi Tunyi Abongeh
author2 Tanveer Hussain
Tunyi Tunyi Abongeh
Muhammad Sufyan
Yasir Shahab
format Journal article
container_title International Review of Financial Analysis
container_volume 81
container_start_page 102076
publishDate 2022
institution Swansea University
issn 1057-5219
1873-8079
doi_str_mv 10.1016/j.irfa.2022.102076
publisher Elsevier BV
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
url http://dx.doi.org/10.1016/j.irfa.2022.102076
document_store_str 0
active_str 0
description 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.
published_date 2022-05-31T16:45:52Z
_version_ 1786997849310887936
score 11.013731

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