The Effect of Merger Anticipation on Bidder and Target Firm Announcement Period Returns

38 Pages Posted: 10 Nov 2008 Last revised: 25 Feb 2011

See all articles by Marcia Millon Cornett

Marcia Millon Cornett

Bentley University - Department of Finance

Başak Tanyeri

Bilkent University

Hassan Tehranian

Boston College - Department of Finance

Date Written: October 1, 2010

Abstract

This paper investigates the extent to which investors anticipate bidder and target merger candidacy and if investor anticipations about candidacy affect the distribution of value between bidder and target firm shareholders. We find that investors can predict bidder firms more successfully than target firms. To investigate how value is distributed among bidder and target shareholders, we control for different degrees of predictability in bidder and target selection. Once we account for greater predictability in bidder firm candidacy, the difference between bidder and target firm seven-day cumulative abnormal returns around a merger announcement decreases significantly. Thus, the evidence supports the hypothesis that to some extent the asymmetry in investor anticipations of merger parties causes disparity in bidder and target firm announcement period abnormal returns.

Keywords: merger, endogeneity, anticipation

JEL Classification: G34

Suggested Citation

Cornett, Marcia Millon and Tanyeri, Başak and Tehranian, Hassan, The Effect of Merger Anticipation on Bidder and Target Firm Announcement Period Returns (October 1, 2010). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=958372

Marcia Millon Cornett

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Başak Tanyeri (Contact Author)

Bilkent University ( email )

06533 Bilkent, Ankara
Turkey
903122901871 (Phone)

HOME PAGE: http://www.bilkent.edu.tr/~basak

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

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