Does Investor Misvaluation Drive the Takeover Market?

This paper uses pre-offer market valuations to evaluate the misvaluation and Q theories of takeovers. Bidder and target valuations (price-to-book, or price-to-residual-income-model-value) are related to means of payment, mode of acquisition, premia, target hostility, offer success, and bidder and ta...

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Bibliographic Details
Published in:	The Journal of finance (New York) 2006-04, Vol.61 (2), p.725-762
Main Authors:	DONG, MING, HIRSHLEIFER, DAVID, RICHARDSON, SCOTT, TEOH, SIEW HONG
Format:	Article
Language:	eng
Subjects:	Acquisitions & mergers Analytical forecasting Bidding Book value Business studies Cash Economic concentration Empirical evidence Empirical tests Equity Financial analysis Financial economics Financial investments Financial performance Hypotheses Investors Market prices Studies Take-overs Tender offers Theory Valuation
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Summary:	This paper uses pre-offer market valuations to evaluate the misvaluation and Q theories of takeovers. Bidder and target valuations (price-to-book, or price-to-residual-income-model-value) are related to means of payment, mode of acquisition, premia, target hostility, offer success, and bidder and target announcement-period returns. The evidence is broadly consistent with both hypotheses. The evidence for the Q hypothesis is stronger in the pre-1990 period than in the 1990-2000 period, whereas the evidence for the misvaluation hypothesis is stronger in the 1990-2000 period than in the pre-1990 period.
ISSN:	0022-1082 1540-6261