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Takeover bids, share prices, and the expected value hypothesis
File(s)
File | Description | Size | Format | |
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hutsone_workpap_003.pdf | 2.28 MB |
Author(s)
Date Issued
April 1994
Date Available
13T13:57:28Z May 2010
Abstract
This paper examines the relationship between the price bid for a takeover target, the probability of the bid succeeding and the target's price over the course of the bid. We test and reject Samuelson and Rosenthal's (1986) expected value hypothesis. We find that over the bid, the price of the target of a successful bid typically rises towards the bid price, but is not observed to converge with the bid price. This lack of observed convergenece appears to be due to an early cessation of trading in many of the bids that succeed. In the case of bids that fail, the target's share price is typically observed to rise above the bid price early in the bid. We consider several explanations for this, and suggest that the expectation of a subsequent bid is the most plausible explanation. This is supported by our empirical evidence. We also find that in the cases where the bids fail, early cessation of trading did not occur in the majority of cases.
Sponsorship
Not applicable
Type of Material
Working Paper
Publisher
University of Technology Sydney, School of Finance and Economics
Series
Working paper series (University of Technology, Sydney. School of Finance and Economics)
36
Copyright (Published Version)
1994, School of Finance and Economics, University of Technology, Sydney
Subject – LCSH
Tender offers (Securities)
Stocks--Prices
Language
English
Status of Item
Not peer reviewed
ISSN
1036-7373
This item is made available under a Creative Commons License
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