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Anticipation, Acquisitions and Bidder Returns

Author

Listed:
  • Song, Moon H.

    (San Diego State U)

  • Walkling, Ralph A.

    (Ohio State U)

Abstract
This paper develops and tests the anticipation hypothesis as applied to a bidding firm’s returns and the returns of its rivals. Our results provide strong support for anticipation and the transfer of subsequent bidding information throughout a bidder’s industry. First, the abnormal returns of bidding firms are significantly related to the degree of surprise surrounding a bid announcement. Second, at the time of an initial industry bid announcement, rival firms that will also become bidders in the near future experience significant and differential price adjustments in comparison to rivals who will not bid. Third, these price adjustments are significantly and positively related to the abnormal returns earned by the initial industry bidder. Our results hold after controlling for variables typically associated with acquiring firm returns. Less anticipated bidding activity is, on average, a wealth creating activity. Moreover, the magnitude of the anticipation effect is large enough to alter some well known results. For example, the literature documents that bidders in stock acquisitions earn significantly negative returns. The same result is found in the literature for bidders seeking publicly traded targets. We find that bidders in less anticipated acquisitions earn significantly positive abnormal returns in stock acquisitions and insignificant returns in acquisitions of public targets. Thus, the magnitude of the anticipation effect is larger than that associated with either form of payment or organizational form of the target.

Suggested Citation

  • Song, Moon H. & Walkling, Ralph A., 2005. "Anticipation, Acquisitions and Bidder Returns," Working Paper Series 2005-11, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2005-11
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    File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2005/2005-11.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    4. Akhigbe, Aigbe & Martin, Anna D. & Whyte, Ann Marie, 2007. "Partial acquisitions, the acquisition probability hypothesis, and the abnormal returns to partial targets," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3080-3101, October.

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