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Material Adverse Change Clauses and Acquisition Dynamics

Author

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  • Denis, David J.
  • Macias, Antonio J.

Abstract

Material adverse change (MAC) clauses are a ubiquitous feature of acquisitions and exhibit substantial cross-sectional variation in the number and types of events that are excluded from being material adverse events (MAEs). MAEs are the underlying cause of 69% ofacquisition terminations and 80% of renegotiations. These renegotiations lead to substantial changes in the price offered to target shareholders. Acquisitions with fewer MAE exclusions are characterized by wider arbitrage spreads during the acquisition period and are associated with higher offer premiums. We conclude that MAC clauses have an economically important impact on the dynamics of corporate acquisitions.

Suggested Citation

  • Denis, David J. & Macias, Antonio J., 2013. "Material Adverse Change Clauses and Acquisition Dynamics," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(3), pages 819-847, June.
    • Handle: RePEc:cup:jfinqa:v:48:y:2013:i:03:p:819-847_00
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    Citations

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    Cited by:

    1. Bonaime, Alice & Gulen, Huseyin & Ion, Mihai, 2018. "Does policy uncertainty affect mergers and acquisitions?," Journal of Financial Economics, Elsevier, vol. 129(3), pages 531-558.
    2. Macias, Antonio J. & Moeller, Thomas, 2016. "Target signaling with material adverse change clauses in merger agreements," Journal of Empirical Finance, Elsevier, vol. 39(PA), pages 69-92.
    3. Malmendier, Ulrike M. & Karsten, Christel & Sautner, Zacharias, 2020. "Lawyer Expertise and Contract Design – Evidence from M&A Negotiations," CEPR Discussion Papers 14936, C.E.P.R. Discussion Papers.
    4. Chelsea Schrader & Chiulien Venezia, 2019. "The Relationship Between Tax Risk And Acquisition Price Premium," Accounting & Taxation, The Institute for Business and Finance Research, vol. 11(1), pages 1-10.
    5. Davidson Heath & Mark Mitchell, 2023. "Market Returns and Interim Risk in Mergers," Management Science, INFORMS, vol. 69(1), pages 617-635, January.
    6. Nils Patschureck & Friedrich Sommer & Arnt Wöhrmann, 2015. "Contract design as a risk management tool in corporate acquisitions: theoretical foundations and empirical evidence," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(4), pages 279-316, October.
    7. Sridhar Gogineni & John Puthenpurackal, 2021. "Why do takeover targets protect acquirers? Evidence from force‐the‐vote provisions," Financial Management, Financial Management Association International, vol. 50(3), pages 805-843, September.
    8. Denis Schweizer & Ge Wu, 2021. "Law Firm expertise and shareholder wealth," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 30(4), pages 129-163, November.
    9. Hong Zhu & Qi Zhu, 2016. "Mergers and acquisitions by Chinese firms: A review and comparison with other mergers and acquisitions research in the leading journals," Asia Pacific Journal of Management, Springer, vol. 33(4), pages 1107-1149, December.
    10. Adra, Samer & Barbopoulos, Leonidas G. & Saunders, Anthony, 2020. "The impact of monetary policy on M&A outcomes," Journal of Corporate Finance, Elsevier, vol. 62(C).

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