The effect of reference point prices on mergers and acquisitions

Baker, Malcolm; Pan, Xin; Wurgler, Jeffrey

doi:10.1016/j.jfineco.2012.04.010

Cited by 359 publications

(278 citation statements)

References 67 publications

Supporting

Mentioning

248

Contrasting

Order By: Relevance

“…The significance of 52-week high for our offer premiums is consistent with the recent findings of Baker, Pan, and Wurgler (2012). Moreover, offer premiums are higher for tender offers and when the acquirer is publicly traded.…”

Section: B Market Movements Over the Runup Periodsupporting

confidence: 90%

See 1 more Smart Citation

Merger Negotiations with Stock Market Feedback

Betton

Eckbo

Thompson³

et al. 2012

SSRN Journal

View full text Add to dashboard Cite

Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one-for-one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup-a costly feedback loop where bidders pay twice for anticipated target synergies-markups become strictly increasing in runups. Large-sample tests support rational deal anticipation in runups while rejecting the costly feedback loop. For helpful comments and discussions, we thank the Editor (Cam Harvey), an Associate Editor and two anonymous referees, Laurent Bach, Eric de Bodt, Michael Lemmon, Pablo Moran, and Annette Poulsen. This paper, and an early precursor entitled "Markup pricing revisited", also benetted from comments received in faculty seminars at the following universities and business schools: Aarhus, Adelaide, Arizona, Boston, Calgary, Cambridge, City University of Hong Kong, Colorado, Connecticut, Dartmouth, Georgia, HEC Montreal, Lille, LBS, Lund, Maryland, Melbourne, Navarra, Norwegian School of Economics, BI Norwegian School of Management, Notre Dame, Oregon, Oxford, SMU, Stavanger, Texas A&M, Texas Tech, Tilburg, Tulane, York, and UBC. The paper was also presented at the association meetings of the AFA, EFA, EFMA, FMA, FMAI, and the NFA, as well as at the Paris Spring Corporate Finance Conference and the UBC Summer Finance Conference. Partial nancial support from Tuck's Lindenauer Center for Corporate Governance is gratefully acknowledged. © Sandra Betton, B. Espen Eckbo, Rex Thompson and Karin S. Thorburn 2013. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.Electronic copy available at: http://ssrn.com/abstract=1835073Abstract Do pre-offer target stock price runups increase bidder takeover costs? We present modelbased tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value less the runup) that is greater than minus one-forone and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup ---a costly feedback loop where bidders pay twice for anticipated target synergies ---markups become strictly increasing in runups. Large-sample tests support rational deal anticipation in runups while strongly rejecting the costly feedback loop.

show abstract

Section: B Market Movements Over the Runup Periodsupporting

confidence: 90%

“…Moreover, it is reasonable to assume that the signal is increasing in the size of the toehold. Also, we know from Baker, Pan, and Wurgler (2012) and Table IX below that the target's 52-week high return impacts the takeover premium.…”

Section: F2 Information Prior To the Runup Periodmentioning

confidence: 99%

Merger Negotiations with Stock Market Feedback

Betton

Eckbo

Thompson³

et al. 2012

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…This argument has been supported quite strongly by recent empirical research on financial markets: 1) Anchoring has been found to matter in the bank loan market as the current spread paid by a firm seems to be anchored to the credit spread the firm had paid earlier (see Douglas, Engelberg, Parsons, and Van Wesep (2015)). 2) Baker, Pan, and Wurgler (2012) provide evidence that peak prices of target firms become anchors in mergers and acquisitions.…”

Section: Anchoring and Adjustment Heuristic In Option Pricingmentioning

confidence: 99%

Anchoring and Adjustment Heuristic in Option Pricing

Siddiqi

2015

SSRN Journal

View full text Add to dashboard Cite

“…Both resources, process and management practices from these two firms can benefit each other as a result of M&A. (Baker et al, 2012) Nevertheless, the question remains the degree of integration. In other words, we want to keep the sound management practice of the target firm and unite that with the acquirer firm, while still remain efficient.…”

Section: Alternative Framework Of Mandamentioning

confidence: 99%

HiQ International Company: A Case Study of Operational Effectiveness post Merger and Acquisition

Xia¹

2014

IJBA

View full text Add to dashboard Cite

Mergers and acquisitions occur in a dynamic process in which resource allocation and organization structures are restructured in response to new challenges. Analyzing mergers and acquisitions in the technology sector using the empirical case of HiQ International Ab shows that management efficiency post merger and acquisition requires the reallocation of resources where traditions and culture are broken resulting in numerous side effects of change. In addition, the management morale in the business world may significant differ from what was assumed in the traditional literature on this subject matter. As a matter of fact, if profit maximization is one of the key motives of the acquirer firm, this is often driven by differing incentives that, nevertheless, govern the dynamic process of M&A. Consequently, the benefits of M&A may be greatly reduced due to the management conflicts between the acquiring and the target firm. In this study, we analyze successful acquisitions based on little asset divestiture even in the case of high strategic similarity. We propose an alternative business framework to view M&A given the nature of consulting-based software companies. Consequently, the difference of product-based software companies, as opposed to consulting-based software companies, may employ contrary attitude towards the integration of the target firm. Our study also opens future research opportunities for mergers and acquisitions of international companies in the technology sector. (Note 1)

show abstract

The effect of reference point prices on mergers and acquisitions

Cited by 359 publications

References 67 publications

Merger Negotiations with Stock Market Feedback

Merger Negotiations with Stock Market Feedback

Anchoring and Adjustment Heuristic in Option Pricing

HiQ International Company: A Case Study of Operational Effectiveness post Merger and Acquisition

Contact Info

Product

Resources

About