Deal motivations and bargaining power: do executives show their hand in SEC filings?

Our study tests the bargaining power hypothesis by examining how the operating, marketing, and financial deal motivations cited by the merging-firm managers in company filings with the Securities and Exchange Commission affect their relative bargaining power in value-increasing mergers. We find that acquiring-firm shareholders capture an average of 40.1% of the total shareholder gain. Further analysis shows that acquiring-firm managers gain bargaining power when the target-firm executives cite the acquirer’s technological expertise as a reason for the merger, whereas acquiring-firm managers lose bargaining power when the acquirers cite the target’s technological expertise. Acquirers also lose bargaining power when the target managers cite the acquirer’s manufacturing/resource capacity as a motivation. These results support the role that strategic fit and industry factors play in driving the managers’ relative bargaining position. Finally, our finding that acquiring-firm managers gain bargaining power when the targets cite access to capital or expanding the customer base as a deal motivation sheds light on why firm size is an important determinant of bargaining power. Our study contributes to the literature by providing evidence that acquiring-firm managers often have more bargaining power than previously thought based on empirical studies that analyze the cumulative abnormal returns earned by target- and acquiring-firm shareholders at the merger announcement date.