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Termination Fees in Mergers and Acquisitions: Protecting Investors or Managers?

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  • Paul André
  • Samer Khalil
  • Michel Magnan

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.

Suggested Citation

  • Paul André & Samer Khalil & Michel Magnan, 2007. "Termination Fees in Mergers and Acquisitions: Protecting Investors or Managers?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 541-566, April.
    • Handle: RePEc:bla:jbfnac:v:34:y:2007:i:3-4:p:541-566
    DOI: 10.1111/j.1468-5957.2007.02032.x
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    References listed on IDEAS

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    Cited by:

    1. Neyland, Jordan & Shekhar, Chander, 2018. "How much is too much? Large termination fees and target distress," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 97-112.
    2. Alan Gregory, 2007. "Discussion of Termination Fees in Mergers and Acquisitions: Protecting Investors or Managers?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 567-573, April.
    3. Jeon, Jin Q. & Ligon, James A., 2011. "How much is reasonable? The size of termination fees in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 959-981, September.

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