Abstract: We analyze takeover efficiency when socially conscious acquirers and target share-holders respond to externalities. Despite the Grossman-Hart “holdout” problem and free-riding in externality production, takeovers are socially efficient when target share-holders are consequentialist and acquirers are purely profit-driven. More generally, we identify a balanced-preferences condition under which externalities are fully internalized. Both increases and decreases in the strength of externality-preferences disrupt this balance and lead to inefficiency. We apply our framework to pre-takeover trading dynamics, exchange offers, leveraged buyouts, minority shareholder protections, and the strategic use of social responsibility as both a takeover defense and a bidding tactic.
Abstract: We study how non-price deal terms affect outcomes in merger contests. Weconstruct a new dataset of 673 U.S. mergers completed between 2015 and 2021that records, for each formal offer, the price, method of payment, and contractualterms—including financing contingencies, regulatory approval conditions, duediligence requirements, and exclusivity provisions. We document three patterns:(1) these contractual terms are pervasive in private bidding; (2) their use variessubstantially between strategic and financial bidders; and (3) price alone does notdetermine the winning offer—indeed, in 21% of deals with more than one formalbid, the winning bidder did not submit the highest price. We then estimatea structural model to recover target valuations for non-price deal terms. Ourestimates show that these terms have economically significant effects on targetvaluations and play a central role in determining which offers succeed.
Discussant: Ofer Eldar, University of California-Berkeley
Abstract: This paper evaluates the random assignment assumption underlying the quasi-experimental design that uses exogenously failed mergers. No merger failure is endogeneity-free, however, since withdrawal ultimately reflects a decision made by the firm. Moreover, potential heterogeneity in researchers' judgments when classifying failed bids undermines the reproducibility of research. Many deals classified as exogenously failed, such as those interrupted by competing bids, can alternatively be classified as endogenously failed, depending on the researcher's discretion. More importantly, I find evidence suggesting similarities between exogenously and endogenously failed acquirers. In tests of the market-timing theory of acquisitions, they exhibit similar stock performance, corroborating concerns about endogeneity in conventional exogenous failures. These findings indicate that empirical results in the literature depend critically on how and by whom firms are selected to serve as counterfactuals.
Abstract: We study how takeover announcements affect the productivity of knowledge workers employed by target firms. Using data from GitHub to measure individual work output and a stacked event study specification, we find that work output declines by 14% following takeover announcements. We also find suggestive evidence that code quality deteriorates. The effect on quantity is more pronounced for acquisitions associated with a larger risk of layoffs. Also, the results are weaker in states where takeovers are likely to be motivated by the wish to acquire skilled employees. These patterns are consistent with stress and anxiety induced by takeover uncertainty. The findings highlight a previously under-explored channel through which takeovers can be costly for acquirers. More broadly, the welfare effects of takeovers might extend beyond capital and product markets to include non-trivial productivity and mental health costs for affected workers.
Discussant: Rui Silva, Nova School of Business and Economics
