Abstract
This article provides new evidence on the important role of institutional investors in affecting corporate strategy. Institutional cross-ownership between two firms not only increases the probability of them merging, but also affects the outcomes of mergers and acquisitions (M&As). Institutional cross-ownership reduces deal premiums, increases stock payment in M&A transactions, and lowers the completion probabilities of deals with negative acquirer announcement returns. Furthermore, deals with high institutional cross-ownership have lower transaction costs and disclose more transparent financial statement information. The effect of cross-ownership on the total deal synergies and post-deal long-term performance is positive, which can be attributed to independent and non-transient cross-owners. Our findings are robust after mitigating the cross-ownership asymmetry concern. Overall, our results suggest that the growth of institutional cross-holdings in U.S. stock markets may greatly change corporate strategies and decision-making processes.
Original language | English |
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Pages (from-to) | 187-216 |
Number of pages | 30 |
Journal | Journal of Corporate Finance |
Volume | 48 |
Issue number | 0 |
Early online date | 15 Nov 2017 |
DOIs | |
Publication status | Published - 1 Feb 2018 |
Keywords
- Cross-ownership
- Institutional investors
- Mergers and acquisitions (M&As)