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Does Investor Misvaluation Drive the Takeover Market?

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  • MING DONG
  • DAVID HIRSHLEIFER
  • SCOTT RICHARDSON
  • SIEW HONG TEOH

Abstract

This paper uses pre-offer market valuations to evaluate the misvaluation and "Q" theories of takeovers. Bidder and target valuations (price-to-book, or price-to-residual-income-model-value) are related to means of payment, mode of acquisition, premia, target hostility, offer success, and bidder and target announcement-period returns. The evidence is broadly consistent with both hypotheses. The evidence for the "Q" hypothesis is stronger in the pre-1990 period than in the 1990-2000 period, whereas the evidence for the misvaluation hypothesis is stronger in the 1990-2000 period than in the pre-1990 period. Copyright 2006 by The American Finance Association.

Suggested Citation

  • Ming Dong & David Hirshleifer & Scott Richardson & Siew Hong Teoh, 2006. "Does Investor Misvaluation Drive the Takeover Market?," Journal of Finance, American Finance Association, vol. 61(2), pages 725-762, April.
  • Handle: RePEc:bla:jfinan:v:61:y:2006:i:2:p:725-762
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