Misvaluation and UK Mergers 1985-2002

38 Pages Posted: 1 Apr 2005 Last revised: 27 Nov 2017

See all articles by Jerry Coakley

Jerry Coakley

University of Essex - Essex Business School

Lei Fu

University of Essex

Hardy M. Thomas

University of Essex

Date Written: March 1, 2005

Abstract

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

Coakley, Jerry and Fu, Lei and Thomas, Hardy Mathew, Misvaluation and UK Mergers 1985-2002 (March 1, 2005). Available at SSRN: https://ssrn.com/abstract=676668 or http://dx.doi.org/10.2139/ssrn.676668

Jerry Coakley

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/staff/coakley.shtm

Lei Fu (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
0044 7760296488 (Phone)
0044 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/research/lei_fu.shtm

Hardy Mathew Thomas

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
44 01 206-873415 (Phone)
44 1206-873429 (Fax)

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