Empirical Evidence of Overbidding in M&A Contests
57 Pages Posted: 10 Jul 2014 Last revised: 30 Mar 2016
Date Written: March 30, 2016
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: Suggested Citation