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Does Investor Misvaluation Drive the Takeover Market?Ming DongYork University - Schulich School of Business David A. HirshleiferUniversity of California, Irvine - Paul Merage School of Business Scott A. RichardsonLondon Business School Siew Hong TeohUniversity of California - Paul Merage School of Business September 28, 2003 EFA 2003 Annual Conference Paper No. 652 Dice Center Working Paper No. 2003-7 Abstract: 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.
Number of Pages in PDF File: 44 Keywords: takeovers, misvaluation, market efficiency, behavioral finance JEL Classification: G34, G14, G31 working papers seriesDate posted: May 1, 2003 ; Last revised: December 13, 2008Suggested CitationContact Information
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