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Stock market bubble effects on mergers and acquisitions

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  • Aharon, David Y.
  • Gavious, Ilanit
  • Yosef, Rami
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    Abstract

    We investigate if and how mergers and acquisitions are affected by trends in the capital market, and particularly by a stock market bubble. Our main findings indicate that while the prevalence of M&A increased during the technology bubble, the pricing of M&A did not change. Moreover, the bursting of the bubble seems to have led to further cautiousness by investors, which extended throughout the years subsequent to the bursting of the bubble, even when prices on the exchange had rebounded. While we do not find robust evidence for changes in price multiples outside the exchange in concomitance with the changes on the exchange, we document changes in the information used by investors to value their targets. It seems that investors experienced a learning process in terms of the type of variables preferred, appearing to be more cautious since the bubble burst. This learning process investors undergo in concomitance to processes in the market seems to result in their being less affected by periodical or cyclical sentiments of euphoria and depression in the capital market.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 4 (November)
    Pages: 456-470

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:4:p:456-470

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Technology bubble Stock market bubble Market cycles M&A Firm valuation;

    References

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    Cited by:
    1. Morris, John J. & Alam, Pervaiz, 2012. "Value relevance and the dot-com bubble of the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 243-255.

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