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); Duke Innovation & Entrepreneurship Initiative
Financial Management, Vol. 32, No. 3, 2003
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. Even in these two cases, we argue that it is practically difficult to extract this information. We illustrate one of these generic cases using the takeover contest for Paramount in 1994 in which Viacom overpaid by more than $2 billion. Our findings 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: 28
Date posted: January 10, 2005
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