The impact of mispricing and growth on UK M&As

Jerry Coakley, Heba Gazzaz and Hardy Thomas

The European Journal of Finance, 2017, vol. 23, issue 13, 1219-1237

Abstract: This paper investigates the impact of mispricing and growth on salient aspects of 434 UK merger and acquisition (M&A) deals over the 1990–2009 period. Mispricing is proxied by both the 26-week high price and misvaluation given by the deviation of target price from its estimated fundamental value. One or both of these variables has a significantly pervasive influence on all aspects of M&As studied. The target 26-week high price, misvaluation and growth all have a significant effect on both the offer premium and whether bidders pay with cash or stock for the full sample. The 26-week high price is the main driver for the overvalued (price exceeds value) target sub-sample and growth prospects for the undervalued target sub-sample. Short run abnormal returns around the announcement are driven by misvaluation only while offers in excess of the 26-week high and of fundamental value increase the probability of deal success.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:23:y:2017:i:13:p:1219-1237

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DOI: 10.1080/1351847X.2016.1206585

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