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Does Investor Misvaluation Drive the Takeover Market?

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Author Info
MING DONG
DAVID HIRSHLEIFER
SCOTT RICHARDSON
SIEW HONG TEOH

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Abstract

This paper uses pre-offer market valuations to evaluate the misvaluation and "Q" theories of takeovers. Bidder and target valuations (price-to-book, or price-to-residual-income-model-value) are related to means of payment, mode of acquisition, premia, target hostility, offer success, and bidder and target announcement-period returns. The evidence is broadly consistent with both hypotheses. The evidence for the "Q" hypothesis is stronger in the pre-1990 period than in the 1990-2000 period, whereas the evidence for the misvaluation hypothesis is stronger in the 1990-2000 period than in the pre-1990 period. Copyright 2006 by The American Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2006.00853.x
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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 61 (2006)
Issue (Month): 2 (04)
Pages: 725-762
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Handle: RePEc:bla:jfinan:v:61:y:2006:i:2:p:725-762

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sanjai Bhagat & Ming Dong & David A. Hirshleifer & Robert B. Noah, 2004. "Do Tender Offers Create Value? New Methods and Evidence," Finance 0412011, EconWPA. [Downloadable!]
    Other versions:
  2. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2003. "Do shareholders of acquiring firms gain from acquisitions?," NBER Working Papers 9523, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2004. "Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave," NBER Working Papers 10200, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Cécile Carpentier & Jean-François L'Her & Stephan Smith & Jean-Marc Suret, 2007. "Risk, Timing and Overoptimism in Private Placements and Public Offerings," CIRANO Working Papers 2007s-27, CIRANO. [Downloadable!]
  7. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2004. "Do Acquirers With More Uncertain Growth Prospects Gain Less From Acquisitions?," NBER Working Papers 10773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Ulrike Malmendier & Geoffrey Tate, 2004. "Who Makes Acquisitions? CEO Overconfidence and the Market's Reaction," NBER Working Papers 10813, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Missaka Warusawitharana, 2007. "Corporate asset purchases and sales: theory and evidence," Finance and Economics Discussion Series 2007-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  12. Enrico Diecidue & Jeroen van de Ven & Utz Weitzel, 2008. "Shareholders' expectations, aspiration levels, and mergers," Working Papers 08-06, Utrecht School of Economics. [Downloadable!]
  13. Kothari, S.P. & Loutskina, Elena & Nikolaev, Valeri, 2006. "Agency theory of overvalued equity as an explanation for the accrual anomaly," Discussion Paper 103, Tilburg University, Center for Economic Research. [Downloadable!]
  14. Dong, Ming & Hirshleifer, David & Teoh, Siew Hong, 2007. "Stock market misvaluation and corporate investment," MPRA Paper 3109, University Library of Munich, Germany, revised 05 May 2007. [Downloadable!]
  15. Ming Dong & David Hirshleifer, 2004. "A Generalized Earnings-Based Stock Valuation Model," Finance 0412008, EconWPA. [Downloadable!]
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  16. Patricia M. Danzon & Andrew Epstein & Sean Nicholson, 2004. "Mergers and Acquisitions in the Pharmaceutical and Biotech Industries," NBER Working Papers 10536, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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