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Does Investor Misvaluation Drive the Takeover Market?

  • 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)

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.

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Paper provided by EconWPA in its series Finance with number 0412002.

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Length: 60 pages
Date of creation: 04 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0412002
Note: Type of Document - pdf; pages: 60. PDF
Contact details of provider: Web page: http://econwpa.repec.org

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  20. Rajan, Raghuram & Servaes, Henri, 1997. " Analyst Following of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 52(2), pages 507-29, June.
  21. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1989. "Do Managerial Objectives Drive Bad Acquisitions?," NBER Working Papers 3000, National Bureau of Economic Research, Inc.
  22. Brown, David T & Ryngaert, Michael D, 1991. " The Mode of Acquisition in Takeovers: Taxes and Asymmetric Information," Journal of Finance, American Finance Association, vol. 46(2), pages 653-69, June.
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  28. Rhodes-Kropf, Matthew & Robinson, David T. & Viswanathan, S., 2005. "Valuation waves and merger activity: The empirical evidence," Journal of Financial Economics, Elsevier, vol. 77(3), pages 561-603, September.
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