IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Do Tender Offers Create Value? New Methods and Evidence

  • SANJAI BHAGAT

    (University of Colorado - Leeds School of Business)

  • MING DONG

    (York University - Schulich School of Business)

  • DAVID A. HIRSHLEIFER

    (Ohio State University - Fisher College of Business)

  • ROBERT B. NOAH

    (Cambridge Finance Partners, LLC)

We develop the Probability Scaling Method, which rescales short-window announcement period returns; and the Intervention Method, which uses returns associated with intervening events, to estimate value improvements from tender offers. These methods address biases in conventional techniques, which measure only a fraction of the total tender offer gain; and which include revelation about bidder stand-alone value. Perceived value improvements are much larger than traditional methods indicate, so that we cannot reject the hypothesis that bidders on average pay fair prices for targets. Furthermore, our new methods affect inferences about economic forces in the takeover market. We identify several effects (higher combined bidder-target stock returns for hostile offers, lower for equity offers, and lower for diversifying offers) that reflect differences in revelation about stand-alone value, not gains from combination.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econwpa.repec.org/eps/fin/papers/0412/0412011.pdf
Download Restriction: no

Paper provided by EconWPA in its series Finance with number 0412011.

as
in new window

Length: 64 pages
Date of creation: 05 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0412011
Note: Type of Document - pdf; pages: 64
Contact details of provider: Web page: http://econwpa.repec.org

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Schwert, G.W., 1994. "Mark-up Pricing in Mergers and Acquisitions," Papers 95-01, Rochester, Business - Financial Research and Policy Studies.
  2. Franks, Julian & Harris, Robert & Titman, Sheridan, 1991. "The postmerger share-price performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 29(1), pages 81-96, March.
  3. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
  4. Jarrell, Gregg A & Brickley, James A & Netter, Jeffry M, 1988. "The Market for Corporate Control: The Empirical Evidence Since 1980," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 49-68, Winter.
  5. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  6. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
  7. MING DONG & David Hirshleifer & SCOTT RICHARSON & Siew Hong Teoh, 2004. "Does Investor Misvaluation Drive the Takeover Market?," Finance 0412002, EconWPA.
  8. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  9. Kahle, Kathleen M. & Walkling, Ralph A., 1996. "The Impact of Industry Classifications on Financial Research," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 309-335, September.
  10. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  11. Martin, Kenneth J, 1996. " The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership," Journal of Finance, American Finance Association, vol. 51(4), pages 1227-46, September.
  12. Boyan Jovanovic & Serguey Braguinsky, 2002. "Bidder Discounts and Target Premia in Takeovers," NBER Working Papers 9009, National Bureau of Economic Research, Inc.
  13. G. William Schwert, 1999. "Hostility in Takeovers: In the Eyes of the Beholder?," NBER Working Papers 7085, National Bureau of Economic Research, Inc.
  14. Walkling, Ralph A., 1985. "Predicting Tender Offer Success: A Logistic Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 461-478, December.
  15. 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.
  16. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
  17. Vishny, Robert W. & Bhagat, Sanjai & Shleifer, Andrei, 1990. "Hostile Takeovers in the 1980s: The Return to Corporate Specialization," Scholarly Articles 8705861, Harvard University Department of Economics.
  18. Hirshleifer, David & Titman, Sheridan, 1990. "Share Tendering Strategies and the Success of Hostile Takeover Bids," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 295-324, April.
  19. Loughran, Tim & Vijh, Anand M, 1997. " Do Long-Term Shareholders Benefit from Corporate Acquisitions?," Journal of Finance, American Finance Association, vol. 52(5), pages 1765-90, December.
  20. Ravid, S. Abraham & Spiegel, Matthew, 1999. "Toehold strategies, takeover laws and rival bidders," Journal of Banking & Finance, Elsevier, vol. 23(8), pages 1219-1242, August.
  21. Andrei Shleifer & Robert W. Vishny, 2001. "Stock Market Driven Acquisitions," NBER Working Papers 8439, National Bureau of Economic Research, Inc.
  22. Palepu, Krishna G., 1986. "Predicting takeover targets : A methodological and empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 3-35, March.
  23. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  24. Pekka Hietala & Steven N. Kaplan & David T. Robinson, 2002. "What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies," NBER Working Papers 9264, National Bureau of Economic Research, Inc.
  25. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
  26. Jeremy Bulow & Ming Huang & Paul Klemperer, 1996. "Toeholds and Takeovers," Finance 9608001, EconWPA.
  27. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2003. "Do shareholders of acquiring firms gain from acquisitions?," NBER Working Papers 9523, National Bureau of Economic Research, Inc.
  28. S. Ravid & Matthew Spiegel, 1999. "Toehold Strategies, Takeover Laws And Rival Bidders," Yale School of Management Working Papers ysm112, Yale School of Management, revised 01 Jan 2001.
  29. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
  30. Jarrell, Gregg A & Bradley, Michael, 1980. "The Economic Effects of Federal and State Regulations of Cash Tender Offers," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 371-407, October.
  31. Titman, Sheridan, 1984. "The effect of capital structure on a firm's liquidation decision," Journal of Financial Economics, Elsevier, vol. 13(1), pages 137-151, March.
  32. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1990. "Do Managerial Objectives Drive Bad Acquisitions?," Scholarly Articles 27693803, Harvard University Department of Economics.
  33. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  34. Steven Kaplan & Michael S. Weisbach, 1990. "The Success of Acquisitions: Evidence From Disvestitures," NBER Working Papers 3484, National Bureau of Economic Research, Inc.
  35. Mueller, Dennis C, 1985. "Mergers and Market Share," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 259-67, May.
  36. Fishman, Michael J, 1989. " Preemptive Bidding and the Role of the Medium of Exchange in Acquisitions," Journal of Finance, American Finance Association, vol. 44(1), pages 41-57, March.
  37. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April.
  38. Comment, Robert & Jarrell, Gregg A., 1987. "Two-tier and negotiated tender offers: The imprisonment of the free-riding shareholder," Journal of Financial Economics, Elsevier, vol. 19(2), pages 283-310, December.
  39. Schipper, Katherine & Thompson, Rex, 1983. "Evidence on the capitalized value of merger activity for acquiring firms," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 85-119, April.
  40. Hansen, Robert G, 1987. "A Theory for the Choice of Exchange Medium in Mergers and Acquisitions," The Journal of Business, University of Chicago Press, vol. 60(1), pages 75-95, January.
  41. Asquith, Paul & Bruner, Robert F. & Mullins, David Jr., 1983. "The gains to bidding firms from merger," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 121-139, April.
  42. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
  43. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
  44. Eckbo, B Espen & Giammarino, Ronald M & Heinkel, Robert L, 1990. "Asymmetric Information and the Medium of Exchange in Takeovers: Theory and Tests," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 651-75.
  45. Kathleen M. Kahle & Ralph A. Walkling, . "The Impact of Industry Classifications on Financial Research," Research in Financial Economics 9607, Ohio State University.
  46. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
  47. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August.
  48. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
  49. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
  50. Maquieira, Carlos P. & Megginson, William L. & Nail, Lance, 1998. "Wealth creation versus wealth redistributions in pure stock-for-stock mergers," Journal of Financial Economics, Elsevier, vol. 48(1), pages 3-33, April.
  51. Jennings, Robert H & Mazzeo, Michael A, 1993. "Competing Bids, Target Management Resistance, and the Structure of Takeover Bids," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 883-909.
  52. Eckbo, B Espen, 1992. " Mergers and the Value of Antitrust Deterrence," Journal of Finance, American Finance Association, vol. 47(3), pages 1005-29, July.
  53. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, 08.
  54. Servaes, Henri, 1991. " Tobin's Q and the Gains from Takeovers," Journal of Finance, American Finance Association, vol. 46(1), pages 409-19, March.
  55. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
  56. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
  57. Kothari, S. P. & Warner, Jerold B., 1997. "Measuring long-horizon security price performance," Journal of Financial Economics, Elsevier, vol. 43(3), pages 301-339, March.
  58. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
  59. Betton, Sandra & Eckbo, B Espen, 2000. "Toeholds, Bid Jumps, and Expected Payoffs in Takeovers," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 841-82.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0412011. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.