Analyzing M&A: The Effects of Institutional Investor Cross Ownership
This study provides new evidence on the role of institutional investors in corporate strategy, specifically in mergers and acquisitions and for three subsets of deals. For firms that are harder to value with greater information asymmetry, institutional investor cross-ownership between two firms increases transaction fees, reduces deal premiums, and lowers cash consideration in deals. Firms with greater analyst following and cross ownership as a percentage of total institutional ownership pay less fees, lower deal premiums, and less cash consideration in deals. Higher analyst following also contributes to lower completion probabilities while higher cross ownership as a percentage of total institutional ownership increases completion probability. While my results suggest that synergies are largely unaffected by cross ownership and the subsets listed above, my overall results suggest that institutional cross-ownership will continue to affect strategic decision-making processes moving forward.