The Real Merger Gains: Correcting for Partial Anticipation
81 Pages Posted: 8 Feb 2021
Date Written: January 15, 2021
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: Suggested Citation