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Factors Affecting the Magnitude of Premiums Paid to Target-Firm Shareholders in Corporate Acquisitions

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  • Kaufman, Daniel J, Jr

Abstract

The wide range of reported abnormal returns to target-firm shareholders has recently encouraged several researchers to investigate the determinants of the magnitude of these returns. This paper extends the work of these authors by presenting and testing a model of the premium paid to target-firm shareholders in completed corporate acquisitions. The model examines the premium as opposed to the more traditional abnormal return to focus on those factors that might be considered by a bidding-firm's management in the formulation of its offering price. The study also contributes to the corporate control literature by examining a larger data set than previous studies (748 acquisitions that occurred between 1964 and 1983), by ex amining variables that have not been examined in previous studies, and by examining interactions between variables. Copyright 1988 by MIT Press.

Suggested Citation

  • Kaufman, Daniel J, Jr, 1988. "Factors Affecting the Magnitude of Premiums Paid to Target-Firm Shareholders in Corporate Acquisitions," The Financial Review, Eastern Finance Association, vol. 23(4), pages 465-482, November.
  • Handle: RePEc:bla:finrev:v:23:y:1988:i:4:p:465-82
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    Cited by:

    1. Francis, Bill B. & Hasan, Iftekhar & Sun, Xian, 2008. "Financial market integration and the value of global diversification: Evidence for US acquirers in cross-border mergers and acquisitions," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1522-1540, August.
    2. Ahern, Kenneth R., 2012. "Bargaining power and industry dependence in mergers," Journal of Financial Economics, Elsevier, vol. 103(3), pages 530-550.
    3. Flanagan, David J. & O'Shaughnessy, K. C., 2003. "Core-related acquisitions, multiple bidders and tender offer premiums," Journal of Business Research, Elsevier, vol. 56(8), pages 573-585, August.
    4. Madura, Jeff & Ngo, Thanh & Viale, Ariel M., 2012. "Why do merger premiums vary across industries and over time?," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 49-62.
    5. Jeff Madura & Thanh Ngo, 2008. "Clustered Synergies In The Takeover Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(4), pages 333-356.
    6. Jory, Surendranath R. & Ngo, Thanh N. & Wang, Daphne, 2016. "Credit ratings and the premiums paid in mergers and acquisitions," Journal of Empirical Finance, Elsevier, vol. 39(PA), pages 93-104.
    7. Madura, Jeff & Ngo, Thanh & Viale, Ariel M., 2011. "Convergent synergies in the global market for corporate control," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2468-2478, September.
    8. Billett, Matthew T. & Ryngaert, Mike, 1997. "Capital structure, asset structure and equity takeover premiums in cash tender offers," Journal of Corporate Finance, Elsevier, vol. 3(2), pages 141-165, April.

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