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

@article{Edmans2012TheRE,
  title={The Real Effects of Financial Markets: The Impact of Prices on Takeovers},
  author={Alex Edmans and I. Goldstein and W. Jiang},
  journal={Journal of Finance},
  year={2012},
  volume={67},
  pages={933-971}
}
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 inter-quartile decrease in valuation leads to a 7 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 which found… Expand
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