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Dividend mispricing: Evidence from all‐stock merger deals

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  • Kerron Joseph
  • Palani‐Rajan Kadapakkam

Abstract

Stock prices of targets in all‐stock merger deals should reflect acquirer share values, net of expected dividend payments before deal completion. This setting provides a unique opportunity to examine whether market prices of target stocks reflect the price reducing impact of impending acquirer dividends. We find evidence that target stock returns on the acquirer ex‐day are negatively related to the size of the dividend payments, indicating an incomplete adjustment on the last cum‐day. However, given the size of typical quarterly dividends, the magnitude of the estimated 30% incomplete adjustment to the dividend does not represent a viable arbitrage opportunity. Examining a longer window, we find that roughly 70% of the acquirer dividend is incorporated into the target stock price in the period two days after the dividend announcement to the ex‐day. Overall, our results are consistent with target stock prices adjusting slowly over time to reflect impending acquirer dividends.

Suggested Citation

  • Kerron Joseph & Palani‐Rajan Kadapakkam, 2025. "Dividend mispricing: Evidence from all‐stock merger deals," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 48(3), pages 1067-1100, September.
    • Handle: RePEc:bla:jfnres:v:48:y:2025:i:3:p:1067-1100
    DOI: 10.1111/jfir.12441
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