Abstract

http://ssrn.com/abstract=1572686
 
 

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Acquirer Valuation and Acquisition Decisions: Identifying Mispricing Using Short Interest


Itzhak Ben-David


Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)

Michael S. Drake


Brigham Young University - Marriott School

Darren T. Roulstone


Ohio State University (OSU) - Fisher College of Business

April 24, 2013

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
Fisher College of Business Working Paper No. 2010-03-011
Charles A. Dice Center Working Paper No. 2010-11

Abstract:     
We use short interest as an investor-based measure of over/undervaluation that distinguishes between the misvaluation and Q-theories of mergers. Using this measure, we find that misvaluation is a strong determinant of merger decision making. Firms in the top quintile of short interest are 54% more likely to engage in stock acquisitions and 22% less likely to engage in cash acquisitions. Stock (but not cash) acquirers have higher short interest than their targets. Overall, our results suggest that the previously documented underperformance of stock acquirers and the overperformance of cash acquirers can be explained by misvaluation, as captured by short interest.

Number of Pages in PDF File: 62

Keywords: Mergers, Acquisitions, Short-Selling, Short, Value Destruction, Overvaluation, Managers, Announcement, Merger Announcement, Acquirer, Target, Event Study, Stock Mergers, Mixed Mergers, Cash Mergers, Method of Payment, Public/Private Targets, Stock Market Driven Acquisitions, Merger Arbitrage

JEL Classification: G14, G17, G34

Accepted Paper Series


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Date posted: March 16, 2010 ; Last revised: May 3, 2013

Suggested Citation

Ben-David, Itzhak and Drake, Michael S. and Roulstone, Darren T., Acquirer Valuation and Acquisition Decisions: Identifying Mispricing Using Short Interest (April 24, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; Fisher College of Business Working Paper No. 2010-03-011; Charles A. Dice Center Working Paper No. 2010-11. Available at SSRN: http://ssrn.com/abstract=1572686 or http://dx.doi.org/10.2139/ssrn.1572686

Contact Information

Itzhak Ben-David (Contact Author)
Ohio State University - Fisher College of Business, Finance Department ( email )
2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/
Michael S. Drake
Brigham Young University - Marriott School ( email )
United States
Darren T. Roulstone
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States

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