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Merger failures
Banal-Estañol, Albert; Seldeslachts, Jo
Universitat Pompeu Fabra. Departament d'Economia i Empresa
This paper proposes an explanation as to why some mergers fail, based on the interactionbetween the pre- and post-merger processes. We argue that failure may stem from informationalasymmetries arising from the pre-merger period, and problems of cooperation andcoordination within recently merged firms. We show that a partner may optimally agree tomerge and abstain from putting forth any post-merger effort, counting on the other partnerto make the necessary efforts. If both follow the same course of action, the merger goesahead but fails. Our unique equilibrium allows us to make predictions on which mergers aremore likely to fail.
2010-05-13
Business Economics and Industrial Organization
Finance and Accounting
Operations Management
mergers
synergies
asymmetric information
complementarities
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