Empirical Evidence of Overbidding in M&A Contests

57 Pages Posted: 10 Jul 2014 Last revised: 30 Mar 2016

See all articles by Eric de Bodt

Eric de Bodt

NHH-Caltech

Jean-Gabriel Cousin

Univ. Lille, ULR 4112 - LSMRC

Richard Roll

California Institute of Technology

Date Written: March 30, 2016

Abstract

Overbidding implies a failure to adequately account for the winner’s curse. Surprisingly few papers have attempted to develop a direct empirical test of the presence of overbidding in M&A contests. We develop such a test grounded on a necessary condition for profit maximizing bidding behavior; the test is not subject to endogeneity concerns. Our results strongly support the existence of overbidding. We provide evidence that overbidding is related to the joint presence of conflicts of interest and irrational bidding behavior.

Keywords: mergers and acquisitions, hubris hypothesis, overbidding

JEL Classification: G34

Suggested Citation

de Bodt, Eric and Cousin, Jean-Gabriel and Roll, Richard W., Empirical Evidence of Overbidding in M&A Contests (March 30, 2016). Available at SSRN: https://ssrn.com/abstract=2463865 or http://dx.doi.org/10.2139/ssrn.2463865

Eric De Bodt

NHH-Caltech ( email )

18B AVENUE BECHET
Kraainem, 1950
Belgium
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Jean-Gabriel Cousin (Contact Author)

Univ. Lille, ULR 4112 - LSMRC ( email )

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France
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Richard W. Roll

California Institute of Technology ( email )

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Mail Code: 228-77
Pasadena, CA 91125
United States
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310-836-3532 (Fax)

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