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The Winner's Curse and Bidder Competition in Acquisitions: Evidence from Failed Bank Auctions

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  • Giliberto, S Michael
  • Varaiya, Nikhil P
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    Abstract

    Auction theory predictions are used to test if winning bidders overpay (the "winner's curse") in FDIC sealed-bid auctions of failed banks. The authors find that winning bids tend to increase as the number of competitors increases, as predicted by theory. Further, bid levels of all bidders increase with increased competition, which is consistent with bidders' failing to adjust for the winner's curse in a common value auction setting. However, additional tests, using only winning bids, only are consistent with both a common value and a private values model, so this result should be interpreted with caution. Copyright 1989 by American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 44 (1989)
    Issue (Month): 1 (March)
    Pages: 59-75

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    Handle: RePEc:bla:jfinan:v:44:y:1989:i:1:p:59-75

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    Cited by:
    1. Cochran, Bruce & Rose, Lawrence C. & Fraser, Donald R., 1995. "A market evaluation of FDIC assisted transactions," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 261-279, May.
    2. James A. Berkovec & John J. Mingo & Xuechun Zhang, 1997. "Premiums in private versus public bank branch sales," Finance and Economics Discussion Series 1997-33, Board of Governors of the Federal Reserve System (U.S.).
    3. Paugam, Luc, 2011. "Valorisation et reporting du goodwill : enjeux théoriques et empiriques," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8007 edited by Casta, Jean-François.
    4. Roy Gardner & Roger Stover, 1998. "The Role of Information in Resolution Trust Corporation Auctions of Failed Thrifts," Journal of Financial Services Research, Springer, vol. 14(3), pages 209-221, December.
    5. repec:hal:journl:halshs-00703466 is not listed on IDEAS
    6. Cramton, Peter C, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 267-343, Summer.
    7. Howell, Jann C. & Stover, Roger D., 2002. "How much do governance and managerial behavior matter in investment decisions? Evidence from failed thrift auctions," Journal of Corporate Finance, Elsevier, vol. 8(3), pages 195-211, July.
    8. Humphery-Jenner, Mark & Powell, Ronan, 2014. "Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 57-77.
    9. AndréS GóMez-Lobo & Stefan Szymanski, 2001. "A Law of Large Numbers: Bidding and Compulsory Competitive Tendering for Refuse Collection Contracts," Review of Industrial Organization, Springer, vol. 18(1), pages 105-113, February.
    10. Inès Bouden & Luc Paugam & Olivier Ramond, 2011. "Les déterminants de la dépréciation du goodwill : proposition d'un cadre d'analyse," Post-Print hal-00646810, HAL.
    11. Wladimir Andreff, 2012. "The winner's curse: why is the cost of sports mega-events so often underestimated?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00703466, HAL.
    12. Stover, Roger D., 1997. "Early resolution of troubled financial institutions: An examination of the accelerated resolution program," Journal of Banking & Finance, Elsevier, vol. 21(8), pages 1179-1194, August.
    13. Christopher J. Meyer, 1993. "Assessing the performance of real estate auctions," Working Papers 93-1, Federal Reserve Bank of Boston.
    14. Jean-Jacques Laffont, 1998. "Théorie des jeux et économie empirique : le cas des données issues d'enchères," Économie et Prévision, Programme National Persée, vol. 132(1), pages 121-137.

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