Understanding merger incentives and outcomes in the US mutual fund industry

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19 Scopus citations


This paper examines the incentives of acquirers and targets in the merger market.?I estimate a two-sided matching model on acquisitions from the mutual fund industry.?Results show that value maximization is a key driver for some mergers but not all.?Non-value-maximizing acquirers are more acquisitive, but less liked by targets.?Non-value-maximizing acquirers also have worse post-merger outcomes. This paper examines the incentives of acquirers and targets in the merger market. Using data on acquisitions among mutual fund management companies from 1991 to 2004, I estimate a two-sided matching model of the merger market jointly with equations representing merger outcomes. According to the empirical investigation, although the desire to achieve a sufficient scale to attract investors is a key driver for mergers, some mergers seem to be driven by objectives other than shareholder value maximization. I find that companies that are potentially prone to misaligned incentives between owners and managers are more acquisitive than others, yet have significantly worse post-merger operating performance. I also find that these acquirers, despite their higher willingness to pay for targets, are not any more likely to match with high-quality targets, potentially due to targets' incentive to avoid bad organizations.

Original languageEnglish
Pages (from-to)4368-4380
Number of pages13
JournalJournal of Banking and Finance
Issue number11
StatePublished - Nov 2013

Bibliographical note

Funding Information:
Tim Bresnahan provided much inspiration and encouragement through this project. I thank Liran Einav, Jon Levin, Eric Zitzewitz, and Takeshi Amemiya for their guidance and insightful comments, Morten Sorensen for helpful comments, and Jiawei Chen for his help with code. I also thank an anonymous reviewer and the editor who provided many insightful comments. I gratefully acknowledge support by Ewha University and the Koret Foundation through a grant to the Stanford Institute for Economic Policy Research. All remaining errors are my own.


  • M&A
  • Non-value-maximizing behavior
  • Two-sided matching


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