The Winner's Curse and Bidder Competition in Acquisitions: Evidence from Failed Bank Auctions
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.
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Volume (Year): 44 (1989)
Issue (Month): 1 (March)
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