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Security analysts’ target prices and takeover premiums

Dirk Gerritsen

Finance Research Letters, 2015, vol. 13, issue C, 205-213

Abstract: Most existing studies conclude that the accuracy of analysts’ target prices is questionable. In forecasting target prices, analysts estimate a future stock price under the constraint of a time frame of usually 12months. We exclude this source of uncertainty by focusing on valuations in takeover bids. We show that the expected returns by analysts are significantly related to the takeover premiums paid. A 5 percent higher target price is associated with a 1 percent higher takeover bid. The economic significance increases when we control takeover premiums for estimated synergy gains. Our results support the relevance of analysts’ price forecasts.

Keywords: Security analysts; Target prices; Takeover valuation; Mergers; Acquisitions; Anchoring (search for similar items in EconPapers)
JEL-codes: G02 G14 G24 G32 G34 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:13:y:2015:i:c:p:205-213

DOI: 10.1016/j.frl.2015.01.002

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