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Merger Negotiations with Stock Market Feedback
Author(s) -
BETTON SANDRA,
ECKBO B. ESPEN,
THOMPSON REX,
THORBURN KARIN S.
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12151
Subject(s) - negotiation , anticipation (artificial intelligence) , rational expectations , stock (firearms) , microeconomics , stock price , economics , value (mathematics) , tender offer , stock market , business , monetary economics , financial economics , econometrics , computer science , finance , engineering , political science , shareholder , mechanical engineering , paleontology , corporate governance , horse , artificial intelligence , machine learning , series (stratigraphy) , law , biology
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.