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Anticipation, Acquisitions and the Bidder Return Puzzle

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Author Info
Song, Moon H. (San Diego State U)
Walkling, Ralph A. (Ohio State U)
Abstract

This paper documents a dramatic difference in the abnormal announcement period returns of the first bidder to announce an acquisition attempt in a particular industry. Typical of the literature, the set of all bidders in our sample earn abnormal returns indistinguishable from zero. However, bidders announcing an acquisition after a 'dormant period' of at least a year without such activity in their industry earn significantly positive abnormal returns of 0.8%. This contrasts with the insignificantly negative returns earned by bidders with shorter industry dormant periods. We also document that the prices of subsequent bidders adjust proportionately to returns of the initial bidder at the time of that initial announcement. In addition, bidder abnormal returns are significantly positively related to the length of the dormant period. These results provide strong evidence in support of an anticipation hypothesis. Our results hold after controlling for variables typically associated with bidding firm returns.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2004-15.

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Date of creation: Jul 2004
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Handle: RePEc:ecl:ohidic:2004-15

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  2. MING DONG & David Hirshleifer & SCOTT RICHARSON & Siew Hong Teoh, 2004. "Does Investor Misvaluation Drive the Takeover Market?," Finance 0412002, EconWPA. [Downloadable!]
    Other versions:
  3. Comment, Robert & Schwert, G. William, 1995. "Poison or placebo? Evidence on the deterrence and wealth effects of modern antitakeover measures," Journal of Financial Economics, Elsevier, vol. 39(1), pages 3-43, September. [Downloadable!] (restricted)
    Other versions:
  4. Kahle, Kathleen M. & Walkling, Ralph A., 1996. "The Impact of Industry Classifications on Financial Research," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 309-335, September. [Downloadable!]
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  6. Kathleen M. Kahle & Ralph A. Walkling, . "The Impact of Industry Classifications on Financial Research," Research in Financial Economics 9607, Ohio State University. [Downloadable!]
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  13. R. Glenn Hubbard & Darius Palia, 1995. "Benefits of Control, Managerial Ownership, and the Stock Returns of Acquiring Firms," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 782-793, Winter. [Downloadable!] (restricted)
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