The Real Effects of Financial Markets: The Impact of Prices on Takeovers

Alex Edmans · Itay Goldstein B · Wei Jiang

676 citations0/0 files storedThe Journal of Finance

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Finance and Governance Financial Markets and Investment Strategies Merger and Competition Analysis

Abstract

ABSTRACT Using mutual fund redemptions as an instrument for price changes, we identify a strong effect of market prices on takeover activity (the “trigger effect”). An interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood, relative to a 6% unconditional takeover probability. Instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover (the “anticipation effect”). Our results overturn prior literature that finds a weak relation between prices and takeovers without instrumentation. These findings imply that financial markets have real effects: They impose discipline on managers by triggering takeover threats.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 676 citations exist upstream.

References

1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 2003Corporate Governance and Equity Prices 1983The market for corporate control 1980Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation 2008What Matters in Corporate Governance?2001New Evidence and Perspectives on Mergers 1965Mergers and the Market for Corporate Control 2003Stock market driven acquisitions

Cited by

2019Institutional shareholders and corporate social responsibility 2012The Real Effects of Financial Markets 2013The Supply of Corporate Directors and Board Independence 2017Investor flows and fragility in corporate bond funds 2013Learning from peers' stock prices and corporate investment 2014Redefining Financial Constraints: A Text-Based Analysis 2012

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.