The effect of reference point prices on mergers and acquisitions
Xin Pan and
Jeffrey Wurgler ()
Journal of Financial Economics, 2012, vol. 106, issue 1, 49-71
Prior stock price peaks of targets affect several aspects of merger and acquisition activity. Offer prices are biased toward recent peak prices although they are economically unremarkable. An offer's probability of acceptance jumps discontinuously when it exceeds a peak price. Conversely, bidder shareholders react more negatively as the offer price is influenced upward toward a peak. Merger waves occur when high returns on the market and likely targets make it easier for bidders to offer a peak price. Parties thus appear to use recent peaks as reference points or anchors to simplify the complex tasks of valuation and negotiation.
Keywords: Mergers; Acquisitions; Offer price; Reference point; Behavioral corporate finance (search for similar items in EconPapers)
JEL-codes: G31 G34 (search for similar items in EconPapers)
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