{"title":"Behavioral Aspects of Merger Decisions: The Effect of Average Purchase Price and Other Reference Prices","authors":"Beni Lauterbach, Yevgeny Mugerman, Joshua Shemesh","doi":"10.2139/ssrn.3856462","DOIUrl":null,"url":null,"abstract":"We develop a novel measure of target shareholders’ average purchase price (TAPP). In a sample of all U.S. public firm merger offers from 1990 to 2019, we find that: (1) the offer premium is positively correlated with the ratio of TAPP to the target’s pre-offer stock price; (2) TAPP dominates several other purchase-price estimators as an explanatory variable; (3) the TAPP effect is additive and about equal in its magnitude to that of the pre-offer 52-week-high price; (4) reference prices affect merger offers primarily through adjusting the offer premium; and (5) the reference-prices-induced increase in premium hurts acquirer shareholders. Our results portray TAPP as a promising shareholder purchase-price indicator.","PeriodicalId":8731,"journal":{"name":"Behavioral & Experimental Finance eJournal","volume":"59 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2021-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Behavioral & Experimental Finance eJournal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3856462","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
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Abstract
We develop a novel measure of target shareholders’ average purchase price (TAPP). In a sample of all U.S. public firm merger offers from 1990 to 2019, we find that: (1) the offer premium is positively correlated with the ratio of TAPP to the target’s pre-offer stock price; (2) TAPP dominates several other purchase-price estimators as an explanatory variable; (3) the TAPP effect is additive and about equal in its magnitude to that of the pre-offer 52-week-high price; (4) reference prices affect merger offers primarily through adjusting the offer premium; and (5) the reference-prices-induced increase in premium hurts acquirer shareholders. Our results portray TAPP as a promising shareholder purchase-price indicator.
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