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Bid anticipation, information revelation, and merger gains

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  • Wang, Wenyu

Abstract

Because firms’ takeover motives are unobservable to investors, mergers are only partially anticipated and often appear as mixed blessings for acquirers. I construct and estimate a model to study the causes and consequences of bid anticipation and information revelation in mergers. Controlling for the market’s reassessment of the acquirer’s stand-alone value, I estimate that acquirers gain 4% from a typical merger. The total value of an active merger market averages 13% for acquirers, part of which is capitalized in their pre-merger market values. My model also explains the correlation between announcement returns and firm characteristics, as well as the low predictability of mergers.

Suggested Citation

  • Wang, Wenyu, 2018. "Bid anticipation, information revelation, and merger gains," Journal of Financial Economics, Elsevier, vol. 128(2), pages 320-343.
  • Handle: RePEc:eee:jfinec:v:128:y:2018:i:2:p:320-343
    DOI: 10.1016/j.jfineco.2018.02.010
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    9. Jurich, Stephen N. & Walker, M. Mark, 2019. "What drives merger outcomes?," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 757-775.
    10. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    11. Michi Nishihara & Takashi Shibata, 2019. "The effects of asset liquidity on dynamic bankruptcy decisions," Discussion Papers in Economics and Business 19-12, Osaka University, Graduate School of Economics.
    12. Dyaran Bansraj & Han Smit & Vadym Volosovych, 2020. "Can Private Equity Funds Act as Strategic Buyers? Evidence from Buy-and-Build Strategies," Tinbergen Institute Discussion Papers 20-041/IV, Tinbergen Institute.
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    14. Michi NISHIHARA, 2021. "How should a startup respond to acquirers? A real options analysis," Discussion Papers in Economics and Business 20-24, Osaka University, Graduate School of Economics.
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    17. Austin, Josh & Harris, Jeremiah & O'Brien, William, 2020. "Do the most prominent firms really make the worst deals? How selection issues affect inferences from M&A studies," Journal of Banking & Finance, Elsevier, vol. 118(C).

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    More about this item

    Keywords

    Mergers and acquisitions; Revelation; Anticipation; Merger gains;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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