Monday, November 12, 2012

SHEN Rui, TANG Yi, CHEN Guoli
When the Role Fits: How Firm Status Differentials Affect Corporate Takeovers
INSEAD Working paper 2012/112/ST

This study explores the implications of inter-firm status differentials for firm behaviors in corporate takeover transactions. We argue that the more the status differential between two firms is aligned with expectations of their roles embedded in the specific economic activity, the easier it is for them to agree on the appropriate means to reach consensus on the given transaction. Using the empirical context of the U.S. corporate takeover market, we document strong support for our theoretical predictions: the greater the status differential between an acquirer and a target, the more positively the market reacts to both the acquirer and the target upon the announcement of the acquisition deal, the more likely it is for the deal to be completed, and the acquirer is also more likely to achieve better post-acquisition performance. We discuss the theoretical implications of our study for corporate takeover research, status theory, and inter-firm transaction and cooperation.