Misvaluation and UK Mergers 1985-2002
38 Pages Posted: 1 Apr 2005 Last revised: 27 Nov 2017
Date Written: March 1, 2005
This paper examines the effects of ex-ante misvaluation on merger activities in UK 1985-2002 using a sample of 302 bidders and targets. Adopting the methodology of M/B by Rhodes-Kropf, Robinson, and Viswananthan (2005), we decompose M/B into three components: firm-specific errors, sector-wide errors and long-run to book ratio. The first two capture misvaluation while the last reflects growth prospects. Our empirical results provide strong support for the misvaluation theory in line with US studies. We also find that high long-run-to-value firms acquire low long-run-to-value firms contrary to the findings by Rhodes-Kropf et al.
Keywords: Misvaluation, M&A, market-to-book ratio, acquisitions
JEL Classification: G34
Suggested Citation: Suggested Citation