A Reference Point Theory of Mergers and Acquisitions
AbstractThe use of judgmental anchors or reference points in valuing corporations affects several basic aspects of merger and acquisition activity including offer prices, deal success, market reaction, and merger waves. Offer prices are biased towards the 52-week high, a highly salient but largely irrelevant past price, and the modal offer price is exactly that reference price. An offer's probability of acceptance discontinuously increases when the offer exceeds the 52-week high; conversely, bidder shareholders react increasingly negatively as the offer price is pulled upward toward that price. Merger waves occur when high recent returns on the stock market and on likely targets make it easier for bidders to offer the 52-week high.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15551.
Date of creation: Dec 2009
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- David Hirshleifer & Angie Low & Siew Hong Teoh, 2012.
"Are Overconfident CEOs Better Innovators?,"
Journal of Finance,
American Finance Association, vol. 67(4), pages 1457-1498, 08.
- Barberis, Nicholas & Xiong, Wei, 2012.
Journal of Financial Economics,
Elsevier, vol. 104(2), pages 251-271.
- Betton, Sandra & Eckbo, B. Espen & Thompson, Rex & Thorburn, Karin S., 2011. "Merger negotiations with stock market feedback," Discussion Papers 2011/8, Department of Business and Management Science, Norwegian School of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.