Does Investor Misvaluation Drive the Takeover Market?

Ming Dong, David Hirshleifer, Scott Richarson and Siew Hong Teoh
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Scott Richarson: University of Pennsylvania

Finance from University Library of Munich, Germany

Abstract: This paper tests the hypothesis that irrational market misvaluation affects firms' takeover behavior. We employ two contemporaneous proxies for market misvaluation, pre-takeover book/price ratios and pre-takeover ratios of residual income model value to price. Misvaluation of bidders and targets influences the means of payment chosen, the mode of acquisition, the premia paid, target hostility to the offer, the likelihood of offer success, and bidder and target announcement period stock returns. The evidence is broadly supportive of the misvaluation hypothesis.

Keywords: takeovers; behavioral finance; investment decisions; market efficiency (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: 60 pages
Date: 2004-12-04
New Economics Papers: this item is included in nep-acc and nep-fin
Note: Type of Document - pdf; pages: 60. PDF
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Does Investor Misvaluation Drive the Takeover Market? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0412002

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