The winner’s curse in acquisitions of privately-held firms

Brander, James A.; Egan, Edward J.

doi:10.1016/j.qref.2017.01.010

Cited by 39 publications

(31 citation statements)

References 35 publications

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“…Hence, the buyers of the private targets pay a lower price and obtain a higher return. Similar results are reported by Moeller, Schlingemann & Stulz, 2004. Brander & Egan, 2017 find that 54% of acquirers of publicly-traded firms obtain statistically significant negative returns, suggesting a stronger winner's curse for public than for private acquisitions.…”

Section: Literature Reviewsupporting

confidence: 83%

The Effect of the Profitability on the Valuation Models: Evidence from Italian Acquisitions

Marinoni¹,

Fellegara²

2019

IBR

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The aim of this study is to analyse the behaviour of the book-to-market index, B/MV, on a sample of Italian listed companies that completed a M&A operation in the span 2008-2016, the decade of the economic-financial crisis. Moreover the authors' interest in investigating the relationship between the market index and the income and non-earnings performance index. The study has verified whether the listed Italian companies sampled have book-to-market indices in line with corporate performance in terms of profitability, and therefore of general economic, patrimonial and financial equilibrium. The intention is to consider if the market manages to "capitalise" corporate trends regularly and with what intensity. The hypothesis concerns the possibility that the B/MV may be more affected by financial market externalities than by the specific economic and financial outlook in terms of market capitalisation. The profound geopolitical and macroeconomic changes of the last few decades and the consequent multiple corporate crises, have undoubtedly called into question the validity and reliability of certain valuation assumptions.

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Section: Literature Reviewsupporting

confidence: 83%

The Effect of the Profitability on the Valuation Models: Evidence from Italian Acquisitions

Marinoni¹,

Fellegara²

2019

IBR

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“…There is a wide literature in the non-financial M&As, which examines the relationship between bidder returns, and the target firms' listing status (Chang, 1998;Fuller et al, 2002;Moeller et al, 2004;Faccio et al, 2006;John et al, 2010;Netter et al, 2011;Arikan and Stulz, 2016;Brander and Egan, 2017). Collectively, these studies document that in public offers, acquiring firm realize negative, or at best zero announcement abnormal returns, while in private offers abnormal returns are positive.…”

Section: Listing Effect and Information Asymmetrymentioning

confidence: 99%

“…Empirical research on the nonfinancial M&As documents similar results. However, there is also considerable evidence in the non-financial mergers showing that acquirers gain when they buy private firms and lose when they buy public firms (Chang, 1998;Fuller et al, 2002;Officer et al, 2009;Netter et al, 2011;Arikan and Stulz, 2016;Brander and Egan, 2017). This phenomenon is usually referred to as the "listing effect" (Faccio et al, 2006), and many studies investigate this issue in the context of information asymmetry theory (for an insightful summary see Tanna and Yousef, 2019).…”

Section: Introductionmentioning

confidence: 99%

Does it pay to acquire private firms? Evidence from the U.S. banking industry

Leledakis

Mamatzakis

Pyrgiotakis

et al. 2020

The European Journal of Finance

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We extend the U.S. bank M&As literature by examining bidder announcement abnormal returns in deals involving both public and private targets over a 32-years examination period. Our main findings document the existence of a listing effect in our sample. Banks gain when they acquire private firms and lose when they acquire public firms. Gains in private offers are even higher when bidders employ financial advisors, whereas the opposite is true for public deals. We argue that this adverse advisor effect relates to the different levels of information asymmetry between public and private targets. Our results remain robust when we control for usual determinants of bidder abnormal returns, such as the method of payment, size, or relative size and when we control for sample selection and endogeneity problems.

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“…With the increasing number of bidders, the aggressiveness of bidding increases, and therefore the likelihood that the winning offer will exceed the intrinsic value of assets (Brajković&Peša, 2015;Holt & Sherman, 2014;Thaler, 1988). The winner's curse is often associated with acquisitions of companies (Brander & Egan, 2017). If several bidders compete to acquire certain company, the winner will probably pay too much for it.…”

Section: )mentioning

confidence: 99%

Cognitive Biases as an Integral Part of Behavioral Finance

Leković

2020

Economic Themes

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The complex world of finance is characterised by numerous irrationalities that representatives of behavioral finance seek to explain by cognitive biases (flaws, inclinations or anomalies). Cognitive biases represent imperfect perception of reality and are caused by limited cognitive capacities of decision-makers. By analysing cognitive biases, the paper aims to answer the following questions that standard finance fails: Why active portfolio strategy is still the most influential strategy in portfolio management despite the mounting evidence of unsuitability of its application? Why investors prefer dividend payout over increase in capital value (dividend puzzle)? Why investors ignore benefits of investment diversification and choose to invest in a small number of shares of well-known local businesses (diversification puzzle)? Why investors avoid to sell “loser” shares and thus reduce the tax burden? Why shares of small companies usually bring higher returns compared to shares of large companies? The answers to these questions are obtained by using qualitative research methodology, which also represents the main result of the research.

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The winner’s curse in acquisitions of privately-held firms

Cited by 39 publications

References 35 publications

The Effect of the Profitability on the Valuation Models: Evidence from Italian Acquisitions

The Effect of the Profitability on the Valuation Models: Evidence from Italian Acquisitions

Does it pay to acquire private firms? Evidence from the U.S. banking industry

Cognitive Biases as an Integral Part of Behavioral Finance

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