The effect of reference point prices on mergers and acquisitions

Prior stock price peaks of targets affect several aspects of merger and acquisition activity. Offer prices are biased toward recent peak prices although they are economically unremarkable. An offer's probability of acceptance jumps discontinuously when it exceeds a peak price. Conversely, bidde...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial economics 2012-10, Vol.106 (1), p.49-71
Main Authors: Baker, Malcolm, Pan, Xin, Wurgler, Jeffrey
Format: Article
Language:English
Subjects:
Acquisitions
Acquisitions & mergers
Behavioral corporate finance
Bidding
Corporate finance
Impact analysis
Mergers
Offer price
Prices
Probability
Rates of return
Reference point
Stock prices
Studies
Valuation
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Prior stock price peaks of targets affect several aspects of merger and acquisition activity. Offer prices are biased toward recent peak prices although they are economically unremarkable. An offer's probability of acceptance jumps discontinuously when it exceeds a peak price. Conversely, bidder shareholders react more negatively as the offer price is influenced upward toward a peak. Merger waves occur when high returns on the market and likely targets make it easier for bidders to offer a peak price. Parties thus appear to use recent peaks as reference points or anchors to simplify the complex tasks of valuation and negotiation.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2012.04.010