How Are Firms Sold? The Role of Common Ownership

Mohammad (Vahid) Irani, Wenhao Yang, and Feng Zhang

♦ We find that common ownership among acquirers enhances rather than hinders competition in the firm sale process. One common owner raises the likelihood that target firms are sold through auction (versus negotiation with one buyer) by 21.5%. The effect is causal according to identifications based on mergers between financial institutions. Exploring economic channels, we observe selling firms respond to common ownership among acquirers by avoiding cross-owned acquirers, by bargaining hard, by inviting more buyers when cross-owned acquirers initiate the deal, but not by terminating the deal. Consistent with enhanced competition, common ownership among acquirers is positively associated with deal quality.

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