What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies
INSEAD - Finance
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
David T. Robinson
Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER)
NBER Working Paper No. w9264
We present a framework for determining the information that can be extracted from stock prices around takeover contests. In only two types of cases is it theoretically possible to use stock price movements to infer bidder overpayment and relative synergies. The takeover contest for Paramount in 1994 illustrates one of these generic cases. We estimate that Viacom, the winning' bidder, overpaid for Paramount by more than $2 billion. This occurred despite the fact that Viacom's CEO owned roughly 3/4 of Viacom. These results are consistent with managerial overconfidence and/or large private benefits, but not with the traditional agency-based incentive problem.
Number of Pages in PDF File: 44working papers series
Date posted: October 11, 2002
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