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Variables in dollar terms versus in rate terms: The case of market feedback on merger negotiations

Author

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  • Chou, Hsin-I
  • Li, Baibing
  • Yin, Xiangkang
  • Zhao, Jing

Abstract

This paper shows a sharp contrast between theoretical predictions of merger negotiations when takeover markup and runup are measured in dollar vs rate terms. It argues that the empirical tests by an influential study cannot reject the hypothesis of a costly feedback loop as the authors claim. Using markup and runup in standardized dollar terms, it provides evidence that is consistent with both hypotheses of rational deal anticipation and a costly feedback loop. This exercise demonstrates the importance and necessity of differentiating regressions with variables in dollar terms and in rate terms to avoid drawing inaccurate or even false conclusions.

Suggested Citation

  • Chou, Hsin-I & Li, Baibing & Yin, Xiangkang & Zhao, Jing, 2017. "Variables in dollar terms versus in rate terms: The case of market feedback on merger negotiations," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 138-145.
    • Handle: RePEc:eee:finana:v:49:y:2017:i:c:p:138-145
    DOI: 10.1016/j.irfa.2017.01.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Takeover; Offer premium; Runup; Markup; Feedback loop;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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