Investor Cost Basis and Takeover Bids

44 Pages Posted: 10 Apr 2012

Date Written: April 9, 2012

Abstract

This study examines how institutional investors’ cost bases impact takeover offer prices and the likelihood of deal success. We find evidence consistent with the ‘disposition effect’ - a reluctance to realize losses. After controlling for pre-bid prices, cost basis has a positive association with both offer prices and the likelihood of deal acceptance. We find that this behavior is mostly concentrated within short term focused, transient investors. We also use post-bid-rejection returns to provide evidence that the disposition effect, rather than private information, drives the rejection of bids with offer prices that fall short of the average cost basis.

Keywords: Disposition effect, takeovers, institutional investors

JEL Classification: G20, G34

Suggested Citation

Caskey, Judson and Aobdia, Daniel, Investor Cost Basis and Takeover Bids (April 9, 2012). Available at SSRN: https://ssrn.com/abstract=2037551 or http://dx.doi.org/10.2139/ssrn.2037551

Judson Caskey (Contact Author)

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://sites.google.com/site/judsoncaskey/

Daniel Aobdia

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

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