Variables in dollar terms versus in rate terms: The case of market feedback on merger negotiations

Hsin-I Chou, Baibing Li, Xiangkang Yin and Jing Zhao

International Review of Financial Analysis, 2017, vol. 49, issue C, 138-145

Abstract: This paper shows a sharp contrast between theoretical predictions of merger negotiations when takeover markup and runup are measured in dollar vs rate terms. It argues that the empirical tests by an influential study cannot reject the hypothesis of a costly feedback loop as the authors claim. Using markup and runup in standardized dollar terms, it provides evidence that is consistent with both hypotheses of rational deal anticipation and a costly feedback loop. This exercise demonstrates the importance and necessity of differentiating regressions with variables in dollar terms and in rate terms to avoid drawing inaccurate or even false conclusions.

Keywords: Takeover; Offer premium; Runup; Markup; Feedback loop (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:49:y:2017:i:c:p:138-145

DOI: 10.1016/j.irfa.2017.01.002

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