Does Investor Misvaluation Drive the Takeover Market?
York University - Schulich School of Business
David A. Hirshleifer
University of California, Irvine - Paul Merage School of Business
Scott A. Richardson
London Business School
Siew Hong Teoh
University of California - Paul Merage School of Business
September 28, 2003
EFA 2003 Annual Conference Paper No. 652
Dice Center Working Paper No. 2003-7
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, G31working papers series
Date posted: May 1, 2003 ; Last revised: December 13, 2008
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