Bid Anticipation, Information Revelation, and Merger Gains

53 Pages Posted: 19 Nov 2014 Last revised: 17 Feb 2017

Wenyu Wang

Indiana University - Kelley School of Business - Department of Finance

Date Written: February 16, 2017

Abstract

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

Wang, Wenyu, Bid Anticipation, Information Revelation, and Merger Gains (February 16, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2526312 or http://dx.doi.org/10.2139/ssrn.2526312

Wenyu Wang (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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