Journal of Finance Vol. 59 No. 1 2004

Price Pressure around Mergers

Mark Mitchell¹; Todd Pulvino; Erik Stafford

¹ Mitchell is at CNN Partners; Pulvino is at Northwestern University; and Statford is at Harvard Business School. We thank Malcolm Baker, Joshua Coval, Harry DeAngelo, Diane Garnick, Peter Hecht, Ravi Jagannathan, Dirk Jenter, Owen Lamont, Mike Maloney, Vefa Tarhan, an anonymous referee, and seminar p

Abstract

This paper examines the trading behavior of professional investors around 2,130 mergers announced between 1994 and 2000. We find considerable support for the existence of price pressure around mergers caused by uninformed shifts in excess demand, but that these effects are short‐lived, consistent with the notion that short‐run demand curves for stocks are not perfectly elastic. We estimate that nearly half of the negative announcement period stock price reaction for acquirers in stock‐financed mergers reflects downward price pressure caused by merger arbitrage short selling, suggesting that previous estimates of merger wealth effects are biased downward.

DOI

10.1111/j.1540-6261.2004.00626.x

Volume

59

Issue

1

Pages

31-63

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓