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

Brooks, Chris; Chen, Zhong; Zeng, Yeqin

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.

Citation

Brooks, C., Chen, Z., & Zeng, Y. (2018). Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions. Journal of Corporate Finance, 48, 187-216. https://doi.org/10.1016/j.jcorpfin.2017.11.003

• Journal Article Type: Article
• Acceptance Date: Nov 9, 2017
• Online Publication Date: Nov 15, 2017
• Publication Date: Feb 1, 2018
• Deposit Date: Sep 21, 2018
• Publicly Available Date: Sep 26, 2018
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 48
• Pages: 187-216
• DOI: https://doi.org/10.1016/j.jcorpfin.2017.11.003
• Public URL: https://durham-repository.worktribe.com/output/1318580
• Related Public URLs: http://centaur.reading.ac.uk/73681/