Institutional cross-ownership and corporate strategy: the case of mergers and acquisitions

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153, Chen, Z. and Zeng, Y. (2018) Institutional cross-ownership and corporate strategy: the case of mergers and acquisitions. Journal of Corporate Finance, 48. pp. 187-216. ISSN 0929-1199 doi: 10.1016/j.jcorpfin.2017.11.003

Abstract/Summary

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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/73681
Identification Number/DOI	10.1016/j.jcorpfin.2017.11.003
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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