Stock market driven acquisitions shleifer

Stock market driven acquisitions shleifer

Author: ElWhite On: 31.05.2017
stock market driven acquisitions shleifer

One of the striking aspects of mergers and acquisitions as a phenomena is the wave pattern of mergers. A number of contextual developments like high economic growth, recovery from an economic downturn, rising stock market and new technologies alter the competitive advantage of firms or open up new markets and trigger mergers.

Stock Market Driven Acquisitions

This study by Andrei Shleifer and Robert W Vishny proposes a theory of acquisition related to the neoclassical theory. In this theory, transactions are driven by stock market valuations of the merging firms.

The fundamental assumption of the model is that financial markets are inefficient, so some firms are valued incorrectly. In contrast, managers are completely rational, understand stock market inefficiencies, and take advantage of them, in part through merger decisions.

The model explains who acquires whom, the choice of the medium of payment, the valuation consequences of mergers, and merger waves.

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The empirical implications of the analysis are discussed in three parts. The model results yield the following predictions.

stock market driven acquisitions shleifer

Many empirical studies are consistent with this viewpoint. There appears to be a powerful incentive for firms to get their equity overvalued, so that they can make acquisitions with stock. Shleifer, Andrei and Vishny, Robert W.

stock market driven acquisitions shleifer

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