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What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies

28 Pages Posted: 10 Jan 2005  

Pekka Hietala

INSEAD - Finance

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

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Abstract

We present a framework for determining the information that can be extracted from stock prices around takeover contests. In only two types of cases is it theoretically possible to use stock price movements to infer bidder overpayment and relative synergies. Even in these two cases, we argue that it is practically difficult to extract this information. We illustrate one of these generic cases using the takeover contest for Paramount in 1994 in which Viacom overpaid by more than $2 billion. Our findings are consistent with managerial overconfidence and/or large private benefits, but not with the traditional agency-based incentive problem.

Suggested Citation

Hietala, Pekka and Kaplan, Steven N. and Robinson, David T., What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies. Financial Management, Vol. 32, No. 3, 2003. Available at SSRN: https://ssrn.com/abstract=453284

Pekka Hietala

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4178 (Phone)
+33 1 6072 4045 (Fax)

HOME PAGE: http://www.insead.fr/facultyresearch/finance/hietala/

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

David T. Robinson (Contact Author)

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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