The evidence of bidders' overpayment in takeovers: the valuation ratios approach

Han, Ki C.; Suk, David Y.; Sung, Hyun Mo

doi:10.1111/j.1540-6288.1998.tb01368.x

Cited by 9 publications

(4 citation statements)

References 42 publications

(35 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Bradley (1980) and Jarrell and Poulsen (1989) obtain low but positive acquiring firm returns. Conversely, Morck et al (1990) and Han et al (1998) observe negative acquiring firm returns. Taking method of payment into consideration, earlier studies find that acquiring firms earn non‐positive abnormal returns from tender offers and negative returns from mergers.…”

Section: Hypothesesmentioning

confidence: 93%

Trading costs around M&A announcements

Mai

2012

International Journal of Managerial Finance

View full text Add to dashboard Cite

PurposeThe purpose of this paper is to examine trading costs of both acquiring firms and target firms differentiated by method of payment, mode of acquisition, and deal attitude around merger and acquisition (M&A) announcements. The author calculates four spread measures of trading costs: quoted spread, percentage quoted spread, effective spread, and percentage effective spread.Design/methodology/approachDifferences in spreads differentiated by M&A characteristics are calculated and two‐sample t‐tests applied. A linear regression model is developed to test whether changes in trading costs are related to acquiring firm's post‐merger price performance. The regression is estimated by OLS method.FindingsIt is found that various methods of payment affect the spreads of target firm differently on certain days around M&A announcement. For acquiring firms, significant differences are found in spreads between cash offers and stock offers, and between stock offers and mix offers. Significant difference was not found in spreads between cash offers and mix offers. The mode of acquisition affects the bid‐ask spreads of target firms only, but not those of acquiring firms. Deal attitudes affect the spreads of target firms on and after M&A announcements. It was also found that all four spread measures are significantly linked to acquiring firms’ post‐merger daily returns.Research limitations/implicationsFurther study can be done on mechanisms through which M&A characteristics impact trading costs.Practical implicationsThis study suggests that M&A characteristics affect firms’ spreads and that changes in spreads need to be accounted for in explaining acquiring firms’ post‐merger daily returns.Originality/valueThe paper fills in an important gap in existing literature by examining trading costs of acquiring firms around M&A announcements. It provides additional evidence on the anomaly of acquiring firm's negative post‐merger returns. The paper is intended to help improve the understanding of trading costs and the behavior of the market participants in response to a major corporate event.

show abstract

Section: Hypothesesmentioning

confidence: 93%

Trading costs around M&A announcements

Mai

2012

International Journal of Managerial Finance

View full text Add to dashboard Cite

show abstract

“…Empirical research on mergers supports the notion that different types of mergers, or at least mergers in different contexts, have different outcomes. For example mergers based on stock transactions are more likely to harm shareholders than are mergers in which one firm acquires another using cash rather than stock (Chang and Suk 1998;Han, Suk, and Sung 1998). Also, firms with differing cultures are less likely to be successful than those with very similar cultures (Carey and Ogden 2004).…”

Section: Empirical Studies Of Mergersmentioning

confidence: 99%

Adding Dimension to Merger Analysis

Jamison¹,

Hauge²

2016

Jnl of Competition Law & Economics

View full text Add to dashboard Cite

Traditional merger analysis in the U.S. focuses on a single dimension, namely the combination of two or more firms that supply substitutable products. As such, merger analysis misses the fact that there are various types of mergers -e.g., hostile takeovers, friendly acquisitions, and mergers of equals -and that the differences among these types affect outcomes. Similarly missing is explicit consideration of merger-created synergies for future markets. We illustrate the effects of painting all mergers with the same brush on the propensity for firms to form beneficial mergers and we suggest means of changing merger analysis to reflect diversity in the natures of mergers and their future markets.

show abstract

“…One reason why this can happen is if the markets believe that the merger might not be successful. Another reason for this is the markets' perception that bidders are overvaluing targets and therefore overpaying target shareholders (Varaiya and Ferris, 1987;Han et al 1998). If these perceptions dominate, then the bidders' stock prices will react negatively to the merger announcements.…”

Section: Research Questions and Hypothesesmentioning

confidence: 99%

Three Essays on Stock Exchange Demutualization and Mergers

Abukari¹

View full text Add to dashboard Cite

The increased competition in the stock exchange industry, intensified by globalization and technological advancements, has motivated a number of changes in the stock exchange industry including demutualization and mergers. This thesis studies stock exchange demutualization and mergers in three separate but related essays. Essay one 1 investigates the stock market and product market effects of stock exchange mergers, which have been facilitated by demutualization. We find that shareholders of targets and shareholders of the combined exchanges realize significant positive abnormal returns. Additionally, we find that shareholders of competitors from countries in the same geographical region and competitors at the same stage of development also realize significant abnormal returns. We also find that on the product market, the merging exchanges increase their market share and experience reductions in bid-ask spreads while rivals experience decreased market share and increased bid-ask spreads. We contend that stock exchange mergers have resulted in significant wealth creation on the stock market and substantial value creation on the product market for the merging entities. Essay two examines the market quality implications of stock exchange demutualization. We find that exchanges undertaking demutualization (especially developed stock exchanges) achieve significant reductions in transaction costs and volatility. Although the demutualized exchanges see improvements in market quality, a controlled group of mutual rival stock exchanges have experienced increases in spreads and volatility in the post-demutualization period, and have, as a result, seen deterioration in market quality. Essay three explores the market power consequences of stock exchange mergers. We find that stock exchange mergers have not resulted in the exercise of market power. Instead, the mergers have led to efficiency gains for the merging exchanges and efficiency losses for rivals. Our findings are insensitive to several robustness checks.

show abstract

The evidence of bidders' overpayment in takeovers: the valuation ratios approach

Cited by 9 publications

References 42 publications

Trading costs around M&A announcements

Trading costs around M&A announcements

Adding Dimension to Merger Analysis

Three Essays on Stock Exchange Demutualization and Mergers

Contact Info

Product

Resources

About