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

Brooks, Chris; Chen, Zhong; Zeng, Yeqin

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Authors

Chris Brooks

Zhong Chen



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/

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