{"title":"Prospect theory in M&A: Do historical purchase prices affect merger offer premiums and announcement returns?","authors":"Beni Lauterbach , Yevgeny Mugerman , Joshua Shemesh","doi":"10.1016/j.jbef.2024.100931","DOIUrl":null,"url":null,"abstract":"<div><p>Prospect Theory suggests that when the pre-offer market price is below the historical purchase price, target shareholders may be reluctant to accept a merger offer, because it requires realizing nominal losses. In a sample of all U.S. public firm merger offers in 1990–2019, we find that the acquirer partially compensates target shareholders, including retail investors, for their losses via a higher offer premium. Consistent with Prospect Theory, the marginal compensation decreases with loss size and is higher in cash-only deals. We also show that the extra premium paid hurts (boosts) acquirer (target) shareholders' wealth.</p></div>","PeriodicalId":47026,"journal":{"name":"Journal of Behavioral and Experimental Finance","volume":"42 ","pages":"Article 100931"},"PeriodicalIF":4.3000,"publicationDate":"2024-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S2214635024000467/pdfft?md5=1f2772bb8704e345f9a3adf8f4b348fe&pid=1-s2.0-S2214635024000467-main.pdf","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Behavioral and Experimental Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S2214635024000467","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Prospect Theory suggests that when the pre-offer market price is below the historical purchase price, target shareholders may be reluctant to accept a merger offer, because it requires realizing nominal losses. In a sample of all U.S. public firm merger offers in 1990–2019, we find that the acquirer partially compensates target shareholders, including retail investors, for their losses via a higher offer premium. Consistent with Prospect Theory, the marginal compensation decreases with loss size and is higher in cash-only deals. We also show that the extra premium paid hurts (boosts) acquirer (target) shareholders' wealth.
期刊介绍：
Behavioral and Experimental Finance represent lenses and approaches through which we can view financial decision-making. The aim of the journal is to publish high quality research in all fields of finance, where such research is carried out with a behavioral perspective and / or is carried out via experimental methods. It is open to but not limited to papers which cover investigations of biases, the role of various neurological markers in financial decision making, national and organizational culture as it impacts financial decision making, sentiment and asset pricing, the design and implementation of experiments to investigate financial decision making and trading, methodological experiments, and natural experiments.
Journal of Behavioral and Experimental Finance welcomes full-length and short letter papers in the area of behavioral finance and experimental finance. The focus is on rapid dissemination of high-impact research in these areas.
京公网安备 11010802042870号
京ICP备2023020795号-1
分享
求助内容：
应助结果提醒方式：
扫码关注我们
