Merger bids, uncertainty, and stockholder returns

This study investigates the effect of merger bids on stock returns. Abnormal stock returns are examined throughout the entire merger process for both successful and unsuccessful merger bids. The evidence shows that increases in the probability of merger benefit the stockholders of target firms, and...

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Bibliographic Details
Published in:Journal of financial economics 1983-04, Vol.11 (1), p.51-83
Main Author: Asquith, Paul
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Bids
Mathematical models
Rates of return
Securities markets
Statistical analysis
Stock prices
Stockholders
Studies
Target company
Tender offers
Uncertainty
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Summary:This study investigates the effect of merger bids on stock returns. Abnormal stock returns are examined throughout the entire merger process for both successful and unsuccessful merger bids. The evidence shows that increases in the probability of merger benefit the stockholders of target firms, and that decreases in the probability of merger harm the stockholders of both target and bidding firms. There is also evidence that the stock market forecasts probable merger targets in advance of any merger announcement, and because of this, previous studies have underestimated the market's reaction to merger bids.
ISSN:0304-405X
1879-2774
DOI:10.1016/0304-405X(83)90005-3