Does Investor Misvaluation Drive the Takeover Market?

EFA 2003 Annual Conference Paper No. 652

Dice Center Working Paper No. 2003-7

44 Pages Posted: 1 May 2003 Last revised: 13 Dec 2008

See all articles by Ming Dong

Ming Dong

York University - Schulich School of Business

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Siew Hong Teoh

University of California, Irvine - Accounting Area

Multiple version iconThere are 2 versions of this paper

Date Written: September 28, 2003

Abstract

This paper tests the hypothesis that irrational market misvaluation affects firms' takeover behavior. We employ two contemporaneous proxies for market misvaluation, pre-takeover book/price ratios and pre-takeover ratios of residual income model value to price. Misvaluation of bidders and targets influences the means of payment chosen, the mode of acquisition, the premia paid, target hostility to the offer, the likelihood of offer success, and bidder and target announcement period stock returns. The evidence is broadly supportive of the misvaluation hypothesis.

Keywords: takeovers, misvaluation, market efficiency, behavioral finance

JEL Classification: G34, G14, G31

Suggested Citation

Dong, Ming and Hirshleifer, David A. and Richardson, Scott Anthony and Teoh, Siew Hong, Does Investor Misvaluation Drive the Takeover Market? (September 28, 2003). EFA 2003 Annual Conference Paper No. 652; Dice Center Working Paper No. 2003-7. Available at SSRN: https://ssrn.com/abstract=393021 or http://dx.doi.org/10.2139/ssrn.393021

Ming Dong

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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