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

Université Lille Nord de France - Lille School of Management Research Center (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 )

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HOME PAGE: http://www.edebodt.eu

Jean-Gabriel Cousin (Contact Author)

Université Lille Nord de France - Lille School of Management Research Center (LSMRC) ( email )

1 place Déliot - BP381
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France
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33-3-2090-7629 (Fax)

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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