What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies
We present a framework for determining the information that can be extracted from stock prices around takeover contests. In only two types of cases is it theoretically possible to use stock price movements to infer bidder overpayment and relative synergies. The takeover contest for Paramount in 1994 illustrates one of these generic cases. We estimate that Viacom, the winning' bidder, overpaid for Paramount by more than $2 billion. This occurred despite the fact that Viacom's CEO owned roughly 3/4 of Viacom. These results are consistent with managerial overconfidence and/or large private benefits, but not with the traditional agency-based incentive problem.
|Date of creation:||Oct 2002|
|Date of revision:|
|Publication status:||published as Pekka Hietala & Steven N. Kaplan & David T. Robinson, 2003. "What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies," Financial Management, Financial Management Association, vol. 32(3), Fall.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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