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Does Investor Misvaluation Drive the Takeover Market?

Author

Listed:
  • MING DONG

    (York University - Schulich School of Business)

  • David Hirshleifer

    (Fisher College of Business, Ohio State University)

  • SCOTT RICHARSON

    (University of Pennsylvania)

  • Siew Hong Teoh

    (Fisher College of Business, Ohio State University)

Abstract

This paper tests the hypothesis that irrational market misvaluation affects firms' takeover behavior. We employ two contemporaneous proxies for market misvaluation, pre-takeover book/price ratios and pre-takeover ratios of residual income model value to price. Misvaluation of bidders and targets influences the means of payment chosen, the mode of acquisition, the premia paid, target hostility to the offer, the likelihood of offer success, and bidder and target announcement period stock returns. The evidence is broadly supportive of the misvaluation hypothesis.

Suggested Citation

  • MING DONG & David Hirshleifer & SCOTT RICHARSON & Siew Hong Teoh, 2004. "Does Investor Misvaluation Drive the Takeover Market?," Finance 0412002, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0412002
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    takeovers; behavioral finance; investment decisions; market efficiency;

    JEL classification:

    • G - Financial Economics

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