Retail and Institutional Investors’ Historical Purchase Prices: Do they Affect Merger Offer Premiums or Outcomes?

56 Pages Posted: 16 Jun 2021 Last revised: 4 Nov 2022

See all articles by Beni Lauterbach

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Yevgeny Mugerman

Bar Ilan University

Joshua Shemesh

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Date Written: November 4, 2022

Abstract

This paper examines whether the prices target shareholders originally paid for their shares affect merger deals. Specifically, when the pre-offer market price is below the historical purchase price, target shareholders may be reluctant to realize their nominal loss. In a sample of all U.S. public firm merger offers in 1990–2019, we find that nominal target shareholder losses are associated with higher premiums and negative acquirer announcement returns. Both institutional and retail investors losses are compensated and, consistent with realization utility, the effect is stronger in cash-only deals. Our results suggest that behavioral reference prices are revealed during pre-bid negotiations.

Keywords: mergers and acquisitions; reference prices; anchoring; retail investors: Prospect Theory.

JEL Classification: G34, G41

Suggested Citation

Lauterbach, Beni and Mugerman, Yevgeny and Shemesh, Joshua, Retail and Institutional Investors’ Historical Purchase Prices: Do they Affect Merger Offer Premiums or Outcomes? (November 4, 2022). Available at SSRN: https://ssrn.com/abstract=3856462 or http://dx.doi.org/10.2139/ssrn.3856462

Beni Lauterbach (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Yevgeny Mugerman

Bar Ilan University ( email )

Ramat Gan
5290002
Israel

Joshua Shemesh

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

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

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

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