Cash is King - Revaluation of Targets after Merger Bids
AbstractWe provide evidence that a significant fraction of the returns to merger announcements reflects target revaluation rather than the causal effect of the merger. In a sample of unsuccessful merger bids from 1980 to 2008, targets of cash offers are revalued by +15% after deal failure, whereas stock targets revert to their pre-announcement levels. This result holds for the subsample where deal failure is exogenous to the target's stand-alone value. We also show that cash bidders revert to their pre-announcement levels, while stock bidders fall below. The results suggest that cash bids signal target undervaluation and stock bids indicate acquirer overvaluation.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18211.
Date of creation: Jul 2012
Date of revision:
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-14 (All new papers)
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