We explain the empirical puzzle why mergers reduce profits and raise share prices. If being an “insider” is better than being an “outsider,” firms may merge to preempt their partner merging with a rival. The stock-value of the insiders is increased, since the risk of becoming an outsider...

We provide a possible explanation for the empirical puzzle that mergers often reduce profits, but raise share prices. If being an "in- sider" is better than being an "outsider", firms may merge to preempt their partner merging with a rival. The insiders' stock market value is increased, since...

We explain the empirical puzzle why mergers reduce profits and raise share prices. If being an "insider" is better than being an "outsider," firms may merge to preempt their partner merging with a rival. The stock-value of the insiders is increased, since the risk of becoming an outsider is...

We explain the empirical puzzle why mergers reduce profits, and raise share prices. If being an 'insider' is better than being an 'outsider', firms may merge to preempt their partner merging with a rival. The stock-value is increased, since the risk of becoming an outsider is eliminated. We also...