Merger market dynamics: insights into the behavior of target and bidder firms

This study presents a framework deriving the demand and supply of target firm shares in merger, and tests it using event study methodology and regression analysis. Target and bidder behavior are not mirror images; instead bidders rank and pursue targets which either accept or reject bids. Merger cycles are motivated by bidder demand shifts, target quality is as important as strategic fit for bidders, and transaction type is confirmed as the most reliable predictor of variation in premiums. Target institutional investors raise the cost to the bidder. (C)2000 Elsevier Science B.V. All rights reserved. JEL classification: D21; G34; L10.