Takeover bids, share prices, and the expected value hypothesis

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Title: Takeover bids, share prices, and the expected value hypothesis
Authors: Hutson, Elaine
Partington, Graham
Permanent link: http://hdl.handle.net/10197/1966
Date: Apr-1994
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.
Funding Details: Not applicable
Type of material: Working Paper
Publisher: University of Technology Sydney, School of Finance and Economics
Series/Report no.: 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)
Other versions: http://www.business.uts.edu.au/finance/research/wpapers/wp36.pdf
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Business Research Collection

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