We study both theoretically and empirically option prices on firms undergoing a cash merger offer. To estimate the … merger's success probability, we use a Markov Chain Monte Carlo (MCMC) method using a state space representation of our model …. Our estimated probability measure has significant predictive power for the merger outcome even after controlling for …

identify the effect of business risk on capital structure. We find that post-merger changes in leverage and cash holdings are … strongly predicted by expected asset volatility changes estimated using pre-merger information. These capital structure …