Does Investor Misvaluation Drive the Takeover Market?

Posted: 6 Oct 2008 Last revised: 19 Oct 2008

See all articles by Ming Dong

Ming Dong

York University - Schulich School of Business

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Siew Hong Teoh

University of California, Irvine - Accounting Area

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2006

Abstract

This paper uses pre-offer market valuations to evaluate the misvaluation and Q theories of takeovers. Bidder and target valuations (price-to-book, or price-to-residual-income-model-value) are related to means of payment, mode of acquisition, premia, target hostility, offer success, and bidder and target announcement-period returns. The evidence is broadly consistent with both hypotheses. The evidence for the Q hypothesis is stronger in the pre-1990 period than in the 1990-2000 period, whereas the evidence for the misvaluation hypothesis is stronger in the 1990-2000 period than in the pre-1990 period.

Keywords: takeovers, misvaluation, market efficiency, behavioral finance

JEL Classification: G34, G14, G31

Suggested Citation

Dong, Ming and Hirshleifer, David A. and Richardson, Scott Anthony and Teoh, Siew Hong, Does Investor Misvaluation Drive the Takeover Market? (April 1, 2006). Journal of Finance, Vol. 61, No. 2, pp. 725-762, April 2006. Available at SSRN: https://ssrn.com/abstract=1275877

Ming Dong

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

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Cambridge, MA 02138
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Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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