Termination Fees in Mergers and Acquisitions: Protecting Investors or Managers? |
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| Authors: | Paul André Samer Khalil Michel Magnan |
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| Institution: | The first author is from HEC Montréal &Management School and Economics, University of Edinburgh. The second author is from Suliman S. Olayan School of Business, American University of Beirut. The third author is from John Molson School of Business, Concordia University, Montréal, Canada. |
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| Abstract: | Abstract: Institutional investors closely monitor termination fees in mergers and acquisitions (M&A). We argue that their magnitude reflects either agency problems or efficiency considerations. Focusing on M&A involving Canadian targets between 1997 and 2004, we assess the determinants and market impact of termination fees. Our findings show that the Thomson's SDC Platinum? Worldwide Mergers & Acquisitions Database underestimates their extent. Results suggest that termination fees are essentially an efficient mechanism as they are relatively higher in M&A with high merger costs, a cash component and expected operating synergies. Stock market returns surrounding the deal announcement do not differ across levels of relative termination fees. |
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| Keywords: | kill fees break fees termination fees mergers and acquisitions |
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