Surprisingly few papers have attempted to develop a direct empirical test for overbidding in merger and acquisition contests. We develop such a test grounded on a necessary condition for profit-maximizing bidding behavior. The test is not subject to endogeneity concerns. Our results strongly support the existence of overbidding. We provide evidence that overbidding is related to conflicts of interest, but also some indirect evidence that it arises from failing to fully account for the winner’s curse.

Acquisitions, mergers, and other business agreements face increasing regulatory scrutiny, even when they involve firms domiciled outside the territory of regulatory authorities. Recent examples include mergers between American firms that were approved by American regulators but blocked by European regulators. Regulatory reciprocity seems a likely future trend. There are obvious consequences for the successful completion of future business combinations. This paper explains the regulatory procedures of the European Commission with respect to business combinations, documents the price reactions of subject firms on dates from the initial announcement to the final regulatory decision, and studies whether European regulators tend to shield European firms from foreign competition. Our main results are: i) the market clearly reacts to European regulatory intervention even when the subject firms are non-European, ii) the probability of intervention is not related to the nationality of the bidder, however, iii) when intervention does occur, the market anticipates it will be more costly when the bidder is non-European, so protectionism cannot be rejected outright, and iv) regulatory interventions are anticipated by investors, so they affect the initial announcement returns.

To protect inframarginal rents, rivals react to competition shocks by increasing product differentiation or lowering costs by standardizing products and production processes. We test these two mutually exclusive reactions by exploiting changes in rivals’ idiosyncratic stock return comovement following significant tariff cuts. While increased product differentiation implies a reduction in return comovement, greater standardization implies the opposite (a comovement increase). Difference-in-differences (DID) tests indicate that tariff cuts cause a significant increase in return comovement—in particular among within-industry “followers.” Treatment effects on cash flows, product counts, similarity scores, and business segment counts further support cost-cutting strategies.

Chief executive officer (CEO) narcissism affects the takeover process. Acquirer shareholders react less favorably to a takeover announcement when the target CEO is more narcissistic. Narcissistic acquiring CEOs negotiate faster. They are also marginally more likely to initiate deals. Acquirer CEO narcissism and target CEO narcissism are associated with a lower probability of deal completion and reduce the likelihood that the target CEO will be employed by the merged firm. Our findings highlight the importance of both acquirer and target CEO psychological characteristics throughout the takeover process.