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Bid anticipation, information revelation, and merger gains

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  • Wang, Wenyu

Abstract

Because firms’ takeover motives are unobservable to investors, mergers are only partially anticipated and often appear as mixed blessings for acquirers. I construct and estimate a model to study the causes and consequences of bid anticipation and information revelation in mergers. Controlling for the market’s reassessment of the acquirer’s stand-alone value, I estimate that acquirers gain 4% from a typical merger. The total value of an active merger market averages 13% for acquirers, part of which is capitalized in their pre-merger market values. My model also explains the correlation between announcement returns and firm characteristics, as well as the low predictability of mergers.

Suggested Citation

  • Wang, Wenyu, 2018. "Bid anticipation, information revelation, and merger gains," Journal of Financial Economics, Elsevier, vol. 128(2), pages 320-343.
    • Handle: RePEc:eee:jfinec:v:128:y:2018:i:2:p:320-343
    DOI: 10.1016/j.jfineco.2018.02.010
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    More about this item

    Keywords

    Mergers and acquisitions; Revelation; Anticipation; Merger gains;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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