This paper proposes an explanation as to why some mergers fail, based on the interaction
between the pre- and post-merger processes. We argue that failure may stem from informational
asymmetries arising from the pre-merger period, and problems of cooperation and
coordination within recently merged firms. We show that a partner may optimally agree to
merge and abstain from putting forth any post-merger effort, counting on the other partner
to make the necessary efforts. If both follow the same ...
This paper proposes an explanation as to why some mergers fail, based on the interaction
between the pre- and post-merger processes. We argue that failure may stem from informational
asymmetries arising from the pre-merger period, and problems of cooperation and
coordination within recently merged firms. We show that a partner may optimally agree to
merge and abstain from putting forth any post-merger effort, counting on the other partner
to make the necessary efforts. If both follow the same course of action, the merger goes
ahead but fails. Our unique equilibrium allows us to make predictions on which mergers are
more likely to fail.
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