Bid Anticipation, Information Revelation, and Merger Gains
53 Pages Posted: 19 Nov 2014 Last revised: 17 Feb 2017
Date Written: February 16, 2017
Because firms' takeover motives are unobservable to investors, mergers are only partially anticipated and often appear as mixed blessings for acquirers. I construct and estimate a model to study the causes and consequences of bid anticipation and information revelation in mergers. Controlling for the market's reassessment of the acquirer's stand-alone value, I estimate acquirers gain 4% from a typical merger. The total value of an active merger market averages 13% for acquirers, part of which is capitalized in their pre-merger market values. My model also explains the correlation between announcement returns and firm characteristics and the low predictability of mergers.
Keywords: Mergers and acquisitions; Structural estimation; Selection bias; Merger gains; Anticipation effect, Revelation effect
JEL Classification: G34, C13, C51
Suggested Citation: Suggested Citation