Determinants and implications of arbitrage holdings in acquisitions

We find evidence of passive and active roles for arbitrageurs in the acquisition process. Using a simultaneous-equation framework to recognize endogeneity, we analyze 608 acquisition bids over the 1992-1999 period. Our results indicate that the change in arbitrage holdings is greater in successful offers. However, changes in arbitrage holdings are also related to the probability of success, bid premia, and arbitrage returns. In addition, the change in arbitrage holdings is positively associated with both revision returns and the occurrence of subsequent bids. Overall, we find that merger arbitrageurs play an important role in the market for corporate control.