Abstract

http://ssrn.com/abstract=886714
 
 

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Stock Returns in Mergers and Acquisitions


Erwan Morellec


Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Dirk Hackbarth


Boston University School of Management; University of Illinois at Urbana-Champaign - College of Business

October 2006

Swiss Finance Institute Research Paper No. 06-1
EFA 2006 Zurich Meetings Paper

Abstract:     
This paper develops a real options framework to analyze the behavior of stock returns in mergers and acquisitions. In this framework, the timing and terms of takeovers are endogenous and result from value-maximizing decisions. The implications of the model for abnormal announcement returns are consistent with the available empirical evidence. In addition, the model generates new predictions regarding the dynamics of firm-level betas for the time period surrounding control transactions. Using a sample of 1090 takeovers of publicly traded US firms between 1985 and 2002, we present new evidence on the dynamics of firm-level betas, which is strongly supportive of the model's predictions.

Number of Pages in PDF File: 44

Keywords: takeovers, real options, stock returns, firm-level betas

JEL Classification: G13, G14, G31, G34

working papers series


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Date posted: March 3, 2006  

Suggested Citation

Morellec, Erwan and Hackbarth, Dirk, Stock Returns in Mergers and Acquisitions (October 2006). Swiss Finance Institute Research Paper No. 06-1; EFA 2006 Zurich Meetings Paper. Available at SSRN: http://ssrn.com/abstract=886714 or http://dx.doi.org/10.2139/ssrn.886714

Contact Information

Erwan Morellec (Contact Author)
Ecole Polytechnique Fédérale de Lausanne ( email )
College of Management
Extranef Quartier UNIL-Dorigny
1015 Lausanne, CH-1015
Switzerland
HOME PAGE: http://sfi.epfl.ch/
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Dirk Hackbarth
Boston University School of Management ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)
HOME PAGE: http://people.bu.edu/dhackbar/
University of Illinois at Urbana-Champaign - College of Business ( email )
4035 BIF, MC-520, Box 35
515 East Gregory Drive
Champaign, IL 61820
United States
(217) 333-7343 (Phone)
(217) 244-3102 (Fax)
HOME PAGE: http://business.illinois.edu/dhackbar/
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