What Drives the Payment of Higher Merger Premiums?

Abstract

Soegiharto

What Drive the Damage to Post-Merger Operating Performance?

“…Data employed in this study are identical to those used in the study of Soegiharto (2010). They are collected from the Securities Data Company's (SDC) Mergers and Acquisitions database.…”

“…This study uses measures of CEO overconfidence designed by Soegiharto (2010) who formulates the measures based on several variables extracted from the Execucomp database. Since information on options held by the CEO until the year of expiration is available only for a small number of CEOs, it is not possible for Soegiharto (2010) and also this present study to apply Malmendier and Tate's (2003) method, which collects the sample of CEOs from Hall and Liebman's data (1989) and classifies a CEO as overconfident when he or she holds stock options until the last year before expiration.…”

“…Since information on options held by the CEO until the year of expiration is available only for a small number of CEOs, it is not possible for Soegiharto (2010) and also this present study to apply Malmendier and Tate's (2003) method, which collects the sample of CEOs from Hall and Liebman's data (1989) and classifies a CEO as overconfident when he or she holds stock options until the last year before expiration. Soegiharto (2010) proposes several measures of CEO overconfidence gauged prior to the year of merger announcement. He argues that as his measures of CEO overconfidence are assessed prior to merger announcement, they may better reflect the CEO overconfidence in undertaking M&As.…”

“…He argues that as his measures of CEO overconfidence are assessed prior to merger announcement, they may better reflect the CEO overconfidence in undertaking M&As. The measures of CEO overconfidence employed by Soegiharto (2010) Soegiharto (2008) and Soegiharto (2010) followed Harford's (2005) simulation procedure to identify M&A waves. The procedure is implemented as follows: each bidder and target is sorted into one of 48 industry groups, based on their respective SIC codes (as per Fama and French 1997) at the time of the bid announcement.…”

“…Similar to Soegiharto (2010), Raj and Forsyth (2003), Hayward and Hambrick (1997), and Crawford and Lechner (1996), the acquisition premium is calculated over the period in which target stock price is not affected by information on the merger. In this study, the window begins 30 trading days before the first announcement of the takeover and ends when the offer is accepted by the target's shareholders.…”