Cross-Ownership, Returns, and Voting in Mergers: Conflicts of Interest among Shareholders

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