TY - JOUR
T1 - Endogenous mergers
T2 - Bidder momentum and market reaction
AU - Kling, Gerhard
AU - Weitzel, Utz
PY - 2010/2/1
Y1 - 2010/2/1
N2 - Recent empirical studies on stock misvaluation as a possible determinant of mergers are inconclusive concerning the central hypothesis that over (under) valuation is negatively (positively) associated with merger announcement returns in stock mergers, but not in cash mergers. We provide empirical support for this hypothesis. In contrast to prior research, we employ a two-stage model to account for endogenous mergers and suggest an alternative specification of misvaluation based on an asset-pricing model (bidder momentum). In the first stage, we specify panel logit models to predict US mergers from 1981 to 2003 and find that bidder momentum triggers stock mergers, but not cash mergers. In the second stage, we regress cumulated abnormal returns on merger probabilities to control for the endogeneity of mergers. This reveals a lower market response for stock mergers compared to cash mergers, which we identify as market correction of misvalued acquirers.
AB - Recent empirical studies on stock misvaluation as a possible determinant of mergers are inconclusive concerning the central hypothesis that over (under) valuation is negatively (positively) associated with merger announcement returns in stock mergers, but not in cash mergers. We provide empirical support for this hypothesis. In contrast to prior research, we employ a two-stage model to account for endogenous mergers and suggest an alternative specification of misvaluation based on an asset-pricing model (bidder momentum). In the first stage, we specify panel logit models to predict US mergers from 1981 to 2003 and find that bidder momentum triggers stock mergers, but not cash mergers. In the second stage, we regress cumulated abnormal returns on merger probabilities to control for the endogeneity of mergers. This reveals a lower market response for stock mergers compared to cash mergers, which we identify as market correction of misvalued acquirers.
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U2 - 10.1080/09603100903282663
DO - 10.1080/09603100903282663
M3 - Article
AN - SCOPUS:73949159284
VL - 20
SP - 243
EP - 254
JO - Applied Financial Economics
JF - Applied Financial Economics
SN - 0960-3107
IS - 3
ER -