Winner’s Curse in Takeovers? Evidence from Investment Bank Valuation Disagreement

57 Pages Posted: 2 Nov 2021 Last revised: 28 Mar 2022

See all articles by Tingting Liu

Tingting Liu

Iowa State University

Tao Shu

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

Jasmine Wang

University of Virginia

Date Written: November 1, 2021


Existing literature debates the existence of the winner’s curse in mergers and acquisitions, a phenomenon in which the winning bidder fails to account for the uncertainty about the target value and thus overpays for the acquisition. Using a unique setting where target firms hire multiple investment banks as advisors, we construct a novel measure of target valuation uncertainty based on the disagreement of investment banks on target valuation. We find that in the presence of high valuation disagreement, bidders on average pay significantly higher acquisition premiums, and bidders who pay higher premiums have lower returns around merger announcements and in the long run. These bidders also create lower merger synergies. Our results are robust to the control for selection bias using Heckman two-stage model with an exclusion restriction. Moreover, the winner’s curse is more pronounced when bidders have overconfident CEOs. Overall, our findings suggest that the winner’s curse does exist in takeovers and causes distortions in resource allocation.

Keywords: Mergers and acquisitions, winner’s curse, valuation disagreement, acquisition premiums, bidder returns, merger synergies, CEO overconfidence

JEL Classification: G41; G14; G34

Suggested Citation

Liu, Tingting and Shu, Tao and Wang, Jasmine, Winner’s Curse in Takeovers? Evidence from Investment Bank Valuation Disagreement (November 1, 2021). Available at SSRN: or

Tingting Liu (Contact Author)

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

Tao Shu

The Chinese University of Hong Kong, Shenzhen ( email )

Shenzhen Finance Institute ( email )

Jasmine Wang

University of Virginia ( email )

125 Ruppel Dr
306 Rouss and Robertson Hall
Charlottesville, VA 22903
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics