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The Benefits of Overvaluation: Evidence from Mergers and Acquisitions
Author(s) -
VagenasNanos Evangelos
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12247
Subject(s) - exploit , empirical evidence , equity (law) , monetary economics , economics , stock (firearms) , mergers and acquisitions , business , value (mathematics) , financial economics , accounting , finance , engineering , mechanical engineering , philosophy , computer security , epistemology , machine learning , computer science , political science , law
Theoretical and empirical evidence debates whether acquirers can exploit their overvalued equity and create value by purchasing less overvalued or undervalued target firms. Shleifer and Vishny (2003) and Savor and Lu (2009) argue in favor of this, while Fu, Lin, and Officer (2013) and Akbulut (2013) provide evidence against. I revisit this issue and develop a quasi‐experimental design. The misvaluation effect for stock acquirers that are more overvalued than their targets is isolated and measured. My findings offer direct evidence in favor of the Shleifer and Vishny (2003) market‐timing hypothesis.