The Real Effects of Valuation Mistakes: Estimates from Mergers and Acquisitions

François Derrien (), Johan Hombert (), Alexei V. Ovtchinnikov () and Philip Valta
Additional contact information
François Derrien: HEC Paris
Johan Hombert: HEC Paris
Alexei V. Ovtchinnikov: HEC Paris
Philip Valta: University of Bern

No 1553, HEC Research Papers Series from HEC Paris

Abstract: We explore how biased investors affect the market for real assets and estimate the resulting efficiency losses. Investors subject to non-proportional thinking ask (too) high merger premia to sell low-price targets and offer (too) low merger premia to buy high-price targets. As a result, M&A premia are lower for high-price targets and both low-and high-price firms are less likely to be acquired than firms in the middle of the price distribution. We test these predictions using a large sample of M&A transactions. We also quantify the value lost because positive-synergy deals do not happen due to non-proportional thinking. Our structural estimation suggests that investors' mistakes reduce the frequency of M&A transactions by about 8% and the value created by the M&A market by about 1%.

Keywords: Merger premium; Acquisition probability; Non-proportional thinking (search for similar items in EconPapers)
JEL-codes: G34 G41 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2025-03-04
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1553

DOI: 10.2139/ssrn.5163769

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 1 Rue de la Libération, 78350 Jouy-en-Josas, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ().