Finance Papers

Document Type

Journal Article

Date of this Version

8-2014

Publication Source

The Journal of Finance

Volume

69

Issue

4

Start Page

1705

Last Page

1745

DOI

10.1111/jofi.12151

Abstract

Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one-for-one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Large-sample tests support rational deal anticipation in runups while rejecting the costly feedback loop.

Copyright/Permission Statement

This is the peer reviewed version of the following article: BETTON, S., ECKBO, B. E., THOMPSON, R. and THORBURN, K. S. (2014), Merger Negotiations with Stock Market Feedback. The Journal of Finance, 69: 1705–1745. doi:10.1111/jofi.12151, which has been published in final form at http://dx.doi.org/10.1111/jofi.12151. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms

Comments

Author Karin S. Thorburn is a full time faculty member of Norwegian School of Economics. She is a visiting professor in the Finance Department of the Wharton School at the University of Pennsylvania.

Embargo Date

7-18-2016

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Date Posted: 27 November 2017

This document has been peer reviewed.