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American Economic Review Vol. 94 No. 1 2004

Bidder Discounts and Target Premia in Takeovers

Boyan Jovanovic1; Serguey Braguinsky2

1 Department of Economics, New York University, 269 Mercer Street, New York, NY 10003. · 2 Department of Economics, State University of New York at Buffalo, 415 Fronczak Hall, Buffalo, NY 14260.

Abstract

On news of a takeover, the sum of the stock market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet upon news of a takeover, a target's price rises, the bidder's price falls, and most of the time the joint value of the target and acquirer also falls.

DOI
10.1257/000282804322970698
Volume
94
Issue
1
Pages
46-56
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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