The pervasiveness of matching rights in merger agreements: Impact on shareholder wealth

Matching rights provisions have become ubiquitous in merger agreements in recent years prompting calls for an evaluation of their usage. Using a sample of 2,640 M&A agreements announced between 2003 and 2018, we conduct the first comprehensive analysis of the impact of matching rights provisions on initial and final target premiums, controlling for other merger provisions, deal and firm characteristics. We do not find evidence to suggest that the indiscriminate usage of matching rights in the 2011–2018 period has been detrimental to target shareholders. Moreover, for the 2003–2010 period, we find a positive association between matching rights and target premiums. We also find a positive or non-negative impact on target premiums for different subsamples of potential concern based on selling method, bidder type, termination fee size, and information asymmetry. Finally, we do not find evidence that matching rights deter competing bids. Overall, the usage of matching rights appears consistent with efficient contracting, assuaging concerns raised by Restrepo and Subramanian (2017).