Rethinking Measures of Mergers & Acquisitions Deal Premiums

Journal of Financial and Quantitative Analysis (JFQA), Vol. 56, 2021, pp. 1097-1126

76 Pages Posted: 8 Mar 2018 Last revised: 22 Apr 2021

See all articles by Gregory W. Eaton

Gregory W. Eaton

University of Georgia

Tingting Liu

Iowa State University ; European Corporate Governance Institute (ECGI)

Micah S. Officer

Loyola Marymount University - Department of Finance

Date Written: October 14, 2019

Abstract

Many academic studies use fixed pre-announcement event days (such as -20, -42, or -63) to measure takeover premiums. In this paper, we show that the use of traditional fixed windows generates premiums that are underestimated by as much as eight percentage points. This downward bias is especially severe for transactions with long processes (such as target-initiated deals). We take account of this bias by hand-collecting deal initiation dates and show that using these dates results in measured premiums that give contradictory conclusions to those found in existing literature. We also offer guidance for measuring premiums if hand-collecting data is impractical.

Keywords: measure takeover premiums, deal initiation, CEO career preferences, anchoring bias, target price runup

JEL Classification: G14, G30, G34

Suggested Citation

Eaton, Gregory W. and Liu, Tingting and Officer, Micah S., Rethinking Measures of Mergers & Acquisitions Deal Premiums (October 14, 2019). Journal of Financial and Quantitative Analysis (JFQA), Vol. 56, 2021, pp. 1097-1126, Available at SSRN: https://ssrn.com/abstract=3132054 or http://dx.doi.org/10.2139/ssrn.3132054

Gregory W. Eaton (Contact Author)

University of Georgia ( email )

Department of Finance
Athens, GA 30602-6254
United States

Tingting Liu

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Micah S. Officer

Loyola Marymount University - Department of Finance ( email )

Los Angeles, CA 90045
United States

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