As in previous decades, merger activity clusters by industry during the 1990s. One particular kind of industry shock, deregulation, becomes a dominant factor, accounting for nearly half of the merger activity since the late 1980s. In contrast to the 1980s, mergers in the 1990s are mostly stock swaps, and hostile takeovers virtually disappear. Over our 1973 to 1998 sample period, the announcement-period stock market response to mergers is positive for the combined merging parties, suggesting that mergers create value on behalf of shareholders. Consistent with that, we find evidence of improved operating performance following mergers, relative to industry peers.

We study shareholder returns for firms that acquired five or more public, private, and0or subsidiary targets within a short time period. Since the same bidder chooses different types of targets and methods of payment, any variation in returns must be due to the characteristics of the target and the bid. Results indicate bidder shareholders gain when buying a private firm or subsidiary but lose when purchasing a public firm. Further, the return is greater the larger the target and if the bidder offers stock. These results are consistent with a liquidity discount, and tax and control effects in this market. Takeovers are one of the most important events in corporate finance, both for a firm and the economy. Extensive research has shown that shareholders in target firms gain significantly and that wealth is created at the announcement of takeovers ~i.e., combined bidder and target returns are positive!. However, we know much less about the effects of takeovers on the shareholders of acquiring firms. Evidence suggests that these shareholders earn,

In this paper, we analyse the short-term wealth effects of large (intra)European takeover bids. We find large announcement effects of 9 % for target firms and a cumulative abnormal return that includes the price run-up over the two-month period prior to the announcement date of 23%. However, the share price of the bidding firms reacts positively with a statistically significant announcement effect of only 0.7%. We also show that the status of a takeover bid has a large impact on the short-term wealth effects of target’s and bidder’s shareholders, with hostile acquisitions triggering substantially larger price reactions than friendly mergers and acquisitions. When a UK target or bidder is involved, the abnormal returns are almost twice as high as bids involving both a Continental European target and bidder. We also find strong evidence that cash offers trigger much larger share price reactions than all-equity offers or combined bids consisting of cash, equity and loan notes. A high market-to-book ratio of the target leads to a higher bid premium, but triggers a negative price reaction for the bidding firm. Also, our results suggest that bidding firms should not diversify by acquiring target firms that do not match their core

We characterize incentive-efficient merger outcomes when payments can be made both in cash and stock. Each firm has private information about both its stand-alone value and a component of the (possibly negative) potential synergies. We study two cases: when transfers can, and cannot, be made contingent on the value of any new firm. When they can, we show that redistributing shares of any nonmerging firm generates information rents and provides necessary and sufficient conditions for the implementability of efficient merger rules. When they cannot, private information undermines efficiency more when it concerns standalone values than synergies. Here, acquisitions emerge as optimal mechanisms. 1.

Abstract: This study analyzes the determinants of changes in corporate ownership and firm failure, taking into account different types of sellers and buyers of control blocks. For a large panel of German companies we find that firms are more likely to fail or to be sold when performance is poor, financial pressure is high, and firm size is small. Pyramids and cross-ownership deter control changes. Ownership concentration has a nonlinear impact on the likelihood of control transfer. In contrast to corporate shareholders, private shareholders tend to sell control blocks of firms under financial pressure.

The paper examines the motivation for termination fee use by proving evidence on the effects of including a target termination fee in a merger contract. I test the implications of the hypothesis that termination fees are used by self-interested target managers to deter competing bids and protect "sweetheart" deals with white knight bidders, presumably resulting in lower premiums for target shareholders. An alternative hypothesis is that target managers use termination fees to encourage bidder participation by ensuring that the bidder is compensated for the revelation of valuable private information released during merger negotiations. My empirical evidence demonstrates that merger deals with target termination fees involve significantly higher premiums and success rates than deals without such clauses. Furthermore, only weak support is found for the contention that termination fees deter competing bids. Overall, the evidence suggests that termination fee use is at least not harmful, and is likely beneficial, to target shareholders. One interpretation of this evidence is that termination fees are used to encourage the release of private information by bidders when competing bidders can free-ride on such information to make higher valued offers for the target.

The world banking industry is undergoing a large-scale transformation. Banking systems and financial markets, both domestic and international, have been undergoing a series of profound changes. One of the main driving forces of these worldwide changes is the introduction of innovations in new information technologies. Against these trends, industrial structure in the banking industry and banking regulation have sometimes encouraged these trends and sometimes adapted to them. The aim of this paper is to present research findings and the main arguments in the literature on technological change and industrial organisation in the banking industry. The last section of the paper focuses on the role of information technologies in the banking industry. We present research findings of functional studies on IT investment in the banking industry. These studies have analysed the relationship between IT and corporate performance by examining specific IT applications in the context of corporate strategies.

Using a game-theoretic real option approach, this paper presents a model of corporate acquisitions. We incorporate imperfect information about synergy gains, strategic interaction among competing bidders, and between the successful bidder and the target firm. Assuming the absence of managerial motives, the model is able to explain some empirical regularities that have only been explained under the agency and hubris hypotheses. Undervaluation, asymmetric distribution of gains, and divestitures are a natural output in our model. This theoretical model suggests that controlling for industry characteristics is an important element in empirical research.

To test recent theories suggesting that valuation errors affect merger activity, we develop a decomposition that breaks the market-to-book ratio (M/B) into three components: the firm-specific pricing deviation from short-run industry pricing; sector-wide, short-run deviations from firms ’ long-run pricing; and long-run pricing to book. We find strong support for recent theories by Rhodes-Kropf and Viswanathan (2004) and Shleifer and Vishny (2003), which predict that misvaluation drives mergers. So much of the behavior of M/B is driven by firm-specific deviations from short-run industry pricing, that long-run components of M/B run counter to the conventional wisdom: Low long-run value to book firms buy high longrun value-to-book firms. Misvaluation affects who buys whom, as well as method of payment, and combines with neoclassical explanations to explain aggregate merger activity. JEL classification: G34, G14

This paper emphasizes the two-way causality between the provision of unemployment insurance and the cultural transmission of work ethic. Values affect the size of the moral-hazard problem and, hence, the policy to be implemented. Conversely, when parents rationally choose how much effort to exert to raise their children to work hard, they form expectations on the policy that will be implemented by the next generation. In this context, I determine the dynamics of preferences across generations and show that the different cultural traits, i.e. high and low work ethics, are complementary. The model could generate a lag between the introduction of unemployment insurance and a deterioration of the work ethic. Relying on a calibration, I argue that it can account for a substantial fraction of the history of European unemployment since World War II. As this explanation is compatible with the co- existence of generous unemployment insurance and low unemployment in the 1950s and 1960s, it could be seen as an alternative to the dominant story that relies on the occurrence