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The Pricing Effects of Interfirm Cash Tender Offers

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  • Bhagat, Sanjai
  • Brickley, James A
  • Loewenstein, Uri

Abstract

The tools provided by option pricing theory of tender offer analysis provides evidence consistent with the "synergy" theory of corporate takeovers and has implications conce rning the economic effects of regulations of cash tender offers. The analysis further suggests that the market prices information uncertai nty in a manner not captured by the standard Capital Asset Pricing Mo del. The study introduces a technique for unbundling the prices of a primary asset and a contingent claim when only the prices of the comb ination are observed. Copyright 1987 by American Finance Association.

Suggested Citation

  • Bhagat, Sanjai & Brickley, James A & Loewenstein, Uri, 1987. "The Pricing Effects of Interfirm Cash Tender Offers," Journal of Finance, American Finance Association, vol. 42(4), pages 965-986, September.
    • Handle: RePEc:bla:jfinan:v:42:y:1987:i:4:p:965-86
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    Cited by:

    1. Gelman, Sergey & Wilfling, Bernd, 2009. "Markov-switching in target stocks during takeover bids," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 745-758, December.
    2. Kiran Thapa, 2013. "Stock Message Board Recommendations and Share Trading Activity," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 10, July-Dece.
    3. Sudi Sudarsanam & Ghulam Sorwar, 2010. "Determinants of Takeover Premium in Cash Offers: An Option Pricing Approach," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5‐6), pages 687-714, June.
    4. Konstantinos Konstantaras & Vasilios Sogiakas, 2019. "Is stock liquidity transferred and upgraded in acquisitions? Evidence from liquidity synergies in US freeze-outs," Annals of Operations Research, Springer, vol. 282(1), pages 179-216, November.
    5. Tumellano Sebehela, 2017. "Game Options," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(03), pages 1-17, September.
    6. Maquieira, Carlos P. & Megginson, William L. & Nail, Lance, 1998. "Wealth creation versus wealth redistributions in pure stock-for-stock mergers," Journal of Financial Economics, Elsevier, vol. 48(1), pages 3-33, April.
    7. Elaine Hutson & Graham Partington, 1994. "Takeover Bids, Share Prices, and the Expected Value Hypothesis," Working Paper Series 36, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    8. Sudi Sudarsanam & Ghulam Sorwar, 2010. "Determinants of Takeover Premium in Cash Offers: An Option Pricing Approach," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5-6), pages 687-714.
    9. Kiran Thapa, 2013. "Stock Message Board Recommendations and Share Trading Activity," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2013, January-A.
    10. Marcato, Gianluca & Sebehela, Tumellano & Campani, Carlos Heitor, 2018. "Volatility smiles when information is lagged in prices," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 151-165.
    11. Hutson, Elaine & Kearney, Colm, 2005. "Merger arbitrage and the interaction between target and bidder stocks during takeover bids," Research in International Business and Finance, Elsevier, vol. 19(1), pages 1-26, March.
    12. Hutson, Elaine, 2000. "Takeover targets and the probability of bid success: Evidence from the Australian market," International Review of Financial Analysis, Elsevier, vol. 9(1), pages 45-65, February.
    13. Hutson, Elaine & Kearney, Colm, 2001. "Volatility in stocks subject to takeover bids: Australian evidence using daily data," Journal of Empirical Finance, Elsevier, vol. 8(3), pages 273-296, July.
    14. G.D. Hancock, 1992. "The Call Option Implicit In Proxy Contested Firms," Review of Financial Economics, John Wiley & Sons, vol. 1(2), pages 53-67, March.
    15. Knill, April M. & Lee, Bong Soo & Mauck, Nathan, 2012. "Sovereign wealth fund investment and the return-to-risk performance of target firms," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 315-340.
    16. Carroll, Rachael & Kearney, Colm, 2015. "Testing the mixture of distributions hypothesis on target stocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 1-14.
    17. Syed Emad Azhar Ali & Fong-Woon Lai & Rohail Hassan & Muhammad Kashif Shad, 2021. "The Long-Run Impact of Information Security Breach Announcements on Investors’ Confidence: The Context of Efficient Market Hypothesis," Sustainability, MDPI, vol. 13(3), pages 1-27, January.

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