Cross-Ownership, Returns, and Voting in Mergers

Cross-Ownership, Returns, and Voting in Mergers

By
Gregor Matvos, Michael Ostrovsky
Journal of Financial Economics.
2008, Vol. 89, Issue 3, Pages 391-403

We show that institutional shareholders of acquiring companies on average do not lose money around public merger announcements, because they hold substantial stakes in the targets and make up for the losses from the acquirers with the gains from the targets. Depending on their holdings in the target, acquirer shareholders generally realize different returns from the same merger, some losing money and others gaining. This conflict of interest is reflected in the mutual fund voting behavior: In mergers with negative acquirer announcement returns, cross-owners are significantly more likely to vote for the merger.