European Business Schools Librarian's Group
HEC Research Papers Series,
HEC Paris
No 1553: The Real Effects of Valuation Mistakes: Estimates from Mergers and Acquisitions
François Derrien (), Johan Hombert (), Alexei V. Ovtchinnikov () and Philip Valta
Additional contact information
François Derrien: HEC Paris
Johan Hombert: HEC Paris
Alexei V. Ovtchinnikov: HEC Paris
Philip Valta: University of Bern
Abstract: We explore how biased investors affect the market for real assets and estimate the resulting efficiency losses. Investors subject to non-proportional thinking ask (too) high merger premia to sell low-price targets and offer (too) low merger premia to buy high-price targets. As a result, M&A premia are lower for high-price targets and both low-and high-price firms are less likely to be acquired than firms in the middle of the price distribution. We test these predictions using a large sample of M&A transactions. We also quantify the value lost because positive-synergy deals do not happen due to non-proportional thinking. Our structural estimation suggests that investors' mistakes reduce the frequency of M&A transactions by about 8% and the value created by the M&A market by about 1%.
Keywords: Merger premium; Acquisition probability; Non-proportional thinking
48 pages, March 4, 2025
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