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The Winner's Curse and Bidder Competition in Acquisitions: Evidence from Failed Bank Auctions


  • Giliberto, S Michael
  • Varaiya, Nikhil P


Auction theory predictions are used to test if winning bidders overpay (the "winner's curse") in FDIC sealed-bid auctions of failed banks. The authors find that winning bids tend to increase as the number of competitors increases, as predicted by theory. Further, bid levels of all bidders increase with increased competition, which is consistent with bidders' failing to adjust for the winner's curse in a common value auction setting. However, additional tests, using only winning bids, only are consistent with both a common value and a private values model, so this result should be interpreted with caution. Copyright 1989 by American Finance Association.

Suggested Citation

  • Giliberto, S Michael & Varaiya, Nikhil P, 1989. " The Winner's Curse and Bidder Competition in Acquisitions: Evidence from Failed Bank Auctions," Journal of Finance, American Finance Association, vol. 44(1), pages 59-75, March.
  • Handle: RePEc:bla:jfinan:v:44:y:1989:i:1:p:59-75

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    References listed on IDEAS

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    Cited by:

    1. Roy Gardner & Roger Stover, 1998. "The Role of Information in Resolution Trust Corporation Auctions of Failed Thrifts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(3), pages 209-221, December.
    2. Howell, Jann C. & Stover, Roger D., 2002. "How much do governance and managerial behavior matter in investment decisions? Evidence from failed thrift auctions," Journal of Corporate Finance, Elsevier, vol. 8(3), pages 195-211, July.
    3. Wladimir Andreff, 2012. "The winner's curse: why is the cost of sports mega-events so often underestimated?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00703466, HAL.
    4. Stover, Roger D., 1997. "Early resolution of troubled financial institutions: An examination of the accelerated resolution program," Journal of Banking & Finance, Elsevier, vol. 21(8), pages 1179-1194, August.
    5. repec:eee:finana:v:54:y:2017:i:c:p:144-158 is not listed on IDEAS
    6. Jean-Jacques Laffont, 1998. "Théorie des jeux et économie empirique : le cas des données issues d'enchères," Économie et Prévision, Programme National Persée, vol. 132(1), pages 121-137.
    7. Cramton, Peter C, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 267-343, Summer.
    8. Cowan, Arnold R. & Salotti, Valentina, 2015. "The resolution of failed banks during the crisis: Acquirer performance and FDIC guarantees, 2008–2013," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 222-238.
    9. repec:jdm:journl:v:12:y:2017:i:5:p:420-429 is not listed on IDEAS
    10. Becker, Jan U. & Clement, Michel & Nöth, Markus, 2016. "Start-ups, incumbents, and the effects of takeover competition," Journal of Business Research, Elsevier, vol. 69(12), pages 5925-5933.
    11. AndréS GóMez-Lobo & Stefan Szymanski, 2001. "A Law of Large Numbers: Bidding and Compulsory Competitive Tendering for Refuse Collection Contracts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(1), pages 105-113, February.
    12. Christopher J. Meyer, 1993. "Assessing the performance of real estate auctions," Working Papers 93-1, Federal Reserve Bank of Boston.
    13. Zhou, Tim, 2015. "Failed bank auctions and externalities," MPRA Paper 65587, University Library of Munich, Germany.
    14. Laffont, Jean-Jacques, 1997. "Game theory and empirical economics: The case of auction data 1," European Economic Review, Elsevier, vol. 41(1), pages 1-35, January.
    15. Paugam, Luc, 2011. "Valorisation et reporting du goodwill : enjeux théoriques et empiriques," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8007 edited by Casta, Jean-François, March.
    16. Offenberg, David & Pirinsky, Christo, 2015. "How do acquirers choose between mergers and tender offers?," Journal of Financial Economics, Elsevier, vol. 116(2), pages 331-348.
    17. Humphery-Jenner, Mark & Powell, Ronan, 2014. "Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 57-77.
    18. repec:bla:stratm:v:37:y:2016:i:13:p:2677-2694 is not listed on IDEAS
    19. Xiaolong Liu & Weidong Qu, 2015. "Winner's Curse or Signaling? Bidding Outcomes in the Chinese Land Market," International Real Estate Review, Asian Real Estate Society, vol. 18(1), pages 113-129.
    20. Cochran, Bruce & Rose, Lawrence C. & Fraser, Donald R., 1995. "A market evaluation of FDIC assisted transactions," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 261-279, May.
    21. Loveland, Robert, 2016. "How prompt was regulatory corrective action during the financial crisis?," Journal of Financial Stability, Elsevier, vol. 25(C), pages 16-36.
    22. Inès Bouden & Luc Paugam & Olivier Ramond, 2011. "Les déterminants de la dépréciation du goodwill : proposition d'un cadre d'analyse," Post-Print hal-00646810, HAL.
    23. Wladimir Andreff, 2012. "The Winner’s Curse: Why is the Cost of Mega Sporting Events so Often Underestimated?," Chapters,in: International Handbook on the Economics of Mega Sporting Events, chapter 4 Edward Elgar Publishing.
    24. James A. Berkovec & John J. Mingo & Xuechun Zhang, 1997. "Premiums in private versus public bank branch sales," Finance and Economics Discussion Series 1997-33, Board of Governors of the Federal Reserve System (U.S.).

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