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Why Do Bidders Do Badly Out of Mergers? Some UK Evidence

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  • Paul Barnes

Abstract

This paper builds on Roll’s hubris hypothesis as to why bidders overpay. It rejects the winner’s curse hypothesis (which implies that the generosity of the merger terms increases the probability of a successful bid) on both theoretical and empirical grounds. The empirical study examines a bargaining theory approach: that the terms offered are determined by the parties’ individual eagerness to merge. It also examines a modification of this: that the terms are dominated by the existence of a premium required by the market irrespective of synergy, thereby also dominating the decision as to whether a bid should be made.

Suggested Citation

  • Paul Barnes, 1998. "Why Do Bidders Do Badly Out of Mergers? Some UK Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5‐6), pages 571-594, June.
    • Handle: RePEc:bla:jbfnac:v:25:y:1998:i:5-6:p:571-594
    DOI: 10.1111/1468-5957.00202
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    Cited by:

    1. Mahendra Raj & Michael Forsyth, 2004. "Management Motive, Shareholder Returns, and the Choice of Payment: Evidence from the UK," American Journal of Business, Emerald Group Publishing, vol. 19(1), pages 23-30.
    2. Ronan G. Powell, 2004. "Takeover Prediction Models and Portfolio Strategies: A Multinomial Approach," Multinational Finance Journal, Multinational Finance Journal, vol. 8(1-2), pages 35-72, March-Jun.
    3. Arpita Mehrotra & Arunaditya Sahay, 2018. "Systematic Review on Financial Performance of Mergers and Acquisitions in India," Vision, , vol. 22(2), pages 211-221, June.
    4. S. Deman, 1999. "Modelling Building Societies Takeovers a Non-Cooperative Game," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 3(3), pages 203-229, September.

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