EconPapers    
Economics at your fingertips  
 

A Reference Point Theory of Mergers and Acquisitions

Malcolm Baker, Xin Pan and Jeffrey Wurgler ()

No 15551, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The use of judgmental anchors or reference points in valuing corporations affects several basic aspects of merger and acquisition activity including offer prices, deal success, market reaction, and merger waves. Offer prices are biased towards the 52-week high, a highly salient but largely irrelevant past price, and the modal offer price is exactly that reference price. An offer's probability of acceptance discontinuously increases when the offer exceeds the 52-week high; conversely, bidder shareholders react increasingly negatively as the offer price is pulled upward toward that price. Merger waves occur when high recent returns on the stock market and on likely targets make it easier for bidders to offer the 52-week high.

JEL-codes: G34 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-fmk
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Published as Baker, Malcolm, Xin Pan, and Jeffrey Wurgler. "The Effect of Reference Point Prices on Mergers and Acquisitions." Journal of Financial Economics 106, no. 1 (October 2012): 49–71.

Downloads: (external link)
http://www.nber.org/papers/w15551.pdf (application/pdf)

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:nbr:nberwo:15551

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15551

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-06-10
Handle: RePEc:nbr:nberwo:15551