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Does Investor Misvaluation Drive the Takeover Market?

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Author Info
MING DONG (York University - Schulich School of Business)
David Hirshleifer (Fisher College of Business, Ohio State University)
SCOTT RICHARSON (University of Pennsylvania)
Siew Hong Teoh (Fisher College of Business, Ohio State University)

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Abstract

This paper tests the hypothesis that irrational market misvaluation affects firms' takeover behavior. We employ two contemporaneous proxies for market misvaluation, pre-takeover book/price ratios and pre-takeover ratios of residual income model value to price. Misvaluation of bidders and targets influences the means of payment chosen, the mode of acquisition, the premia paid, target hostility to the offer, the likelihood of offer success, and bidder and target announcement period stock returns. The evidence is broadly supportive of the misvaluation hypothesis.

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Publisher Info
Paper provided by EconWPA in its series Finance with number 0412002.

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Length: 60 pages
Date of creation: 04 Dec 2004
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Handle: RePEc:wpa:wuwpfi:0412002

Note: Type of Document - pdf; pages: 60. PDF
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Related research
Keywords: takeovers; behavioral finance; investment decisions; market efficiency;

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G - Financial Economics

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References listed on IDEAS
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