The Real Merger Gains: Correcting for Partial Anticipation

81 Pages Posted: 8 Feb 2021

See all articles by Mohammad (Vahid) Irani

Mohammad (Vahid) Irani

University of South Carolina - Darla Moore School of Business

Date Written: January 15, 2021

Abstract

Assuming mergers are unpredictable, previous studies have found they create no value for acquirers, while targets generally gain a hefty bid premium. This paper proposes a new approach to account for partial anticipation, which allows the parameters of the asset pricing model to change in response to anticipation signals. I find that pre-offer alphas capture signals, and so should be part of merger gains. Using matched-control samples, I address endogeneity concerns that market wide movements and firms’ ability to time takeovers may drive these findings. Overall, the gains are larger than a traditional market model would indicate, and mergers create substantial value for both firms.

Keywords: mergers and acquisitions, takeover gains, event studies, partial anticipation, time-varying parameters

JEL Classification: G14; G31; G32; G34

Suggested Citation

Irani, Mohammad (Vahid), The Real Merger Gains: Correcting for Partial Anticipation (January 15, 2021). Available at SSRN: https://ssrn.com/abstract=3767659 or http://dx.doi.org/10.2139/ssrn.3767659

Mohammad (Vahid) Irani (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

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