Variables in Dollar Terms Versus in Rate Terms: The Case of Market Feedback on Merger Negotiations

26 Pages Posted: 11 Feb 2015

See all articles by Hsin-I Chou

Hsin-I Chou

RMIT University; University of Otago - Department of Accountancy and Finance

Baibing Li

Loughborough University

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Jing Zhao

La Trobe University

Date Written: January 6, 2015

Abstract

This paper shows a sharp contrast between theoretical predictions of merger negotiations when takeover markup and runup are measured in dollar vs rate terms. It argues that the empirical tests by an influential study cannot reject the hypothesis of a costly feedback loop as the authors claim. Using markup and runup in standardized dollar terms, it provides evidence that is consistent with both hypotheses of rational deal anticipation and a costly feedback loop. This exercise demonstrates the importance and necessity of differentiating regressions with variables in dollar terms and in rate terms to avoid drawing inaccurate or even false conclusions.

Keywords: Takeover, offer premium, runup, markup, feedback loop

JEL Classification: G34

Suggested Citation

Chou, Hsin-I and Li, Baibing and Yin, Xiangkang and Zhao, Jing, Variables in Dollar Terms Versus in Rate Terms: The Case of Market Feedback on Merger Negotiations (January 6, 2015). Available at SSRN: https://ssrn.com/abstract=2562700 or http://dx.doi.org/10.2139/ssrn.2562700

Hsin-I Chou

RMIT University ( email )

Australia

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

Baibing Li

Loughborough University ( email )

Ashby Road
Nottingham NG1 4BU
Great Britain

Xiangkang Yin

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jing Zhao (Contact Author)

La Trobe University ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

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