Market power and the takeover premium

This thesis provides new evidence that market power is a motivation for takeovers. I develop a proxy based on the market concentration doctrine that measures whether a takeover is likely to cause an increase in the market power of the acquirer. In a test of the determinants of the takeover premium it is found that it is over 10% higher when it is expected that the acquirer will gain additional market power in the transaction. This result indicates that, contrary to the existing literature, firms do use the market for corporate control as a tool to increase their market power. Furthermore, this thesis is the first study to consider the effect the influence a toehold provides the acquirer over the target has on the takeover premium. I develop a new non-linear model that allows for a more refined analysis of this. The results indicate that accounting for the degree of influence a toehold provides the acquirer is important when conducting empirical research on the takeover premium