Do auctions induce a winner's curse? New evidence from the corporate takeover market

Journal of Financial Economics

Volumn 89, Issue 1, 2008, Pages 1-19

  Boone, Audra L ^a   Harold Mulherin, J ^b  

^a UNIVERSITY OF KANSAS   (United States)

^b UNIVERSITY OF GEORGIA   (United States)

Author keywords

Auction; Mergers and acquisitions; Negotiation

Indexed keywords

EID: 48349102656     PISSN: 0304405X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jfineco.2007.08.003     Document Type: Article

References (84)

1. Akerlof G. The market for 'lemons': quality uncertainty and the market mechanism. Quarterly Journal of Economics 84 (1970) 488-500
2. Andrade G., Mitchell M., and Stafford E. New evidence and perspectives on mergers. Journal of Economic Perspectives 15 (2001) 103-120
3. Asquith P. Merger bids, uncertainty, and stock returns. Journal of Financial Economics 11 (1983) 51-83
4. Asquith P., Bruner R., and Mullins D. The gains to bidding firms from merger. Journal of Financial Economics 11 (1983) 121-139
5. Bajari P., and Hortacsu A. The winner's curse, reserve prices, and endogenous entry: empirical insights from eBay auctions. Rand Journal of Economics 34 (2003) 329-355
6. Baker M., Ruback R., and Wurgler J. Behavioral corporate finance: a survey. In: Eckbo E. (Ed). The Handbook of Corporate Finance (2007), Elsevier/North-Holland, New York 145-186
7. Barber B., and Lyon J. Detecting abnormal operating performance: the empirical power and specification of test statistics. Journal of Financial Economics 41 (1996) 359-399
8. Barberis N., and Thaler R. A survey of behavioral finance. In: Constantinides G., Harris M., and Stulz R. (Eds). Handbook of the Economics of Finance (2003), Elsevier, New York 1052-1121
9. Barzel Y. Some fallacies in the interpretation of information costs. Journal of Law and Economics 20 (1977) 291-307
10. Bazerman M., and Samuelson W. I won the auction but don't want the prize. Journal of Conflict Resolution 27 (1983) 618-634
11. Bebchuk L., and Cohen A. Firms decisions where to incorporate. Journal of Law and Economics 46 (2003) 383-425
12. Bebchuk L., and Ferrell A. On takeover law and regulatory competition. Business Lawyer 57 (2002) 1047-1068
13. Betton S., and Eckbo E. Toeholds, bid jumps, and expected payoffs in takeovers. Review of Financial Studies 13 (2000) 841-882
14. Black B. Bidder overpayment in takeovers. Stanford Law Review 41 (1989) 597-653
15. Boone A., and Mulherin H. How are firms sold?. Journal of Finance 62 (2007) 847-875
16. Bowers H., and Miller R. Choice of investment banker and shareholders' wealth of firms involved in acquisitions. Financial Management 19 (1990) 34-44
17. Bradley M., Desai A., and Kim H. Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. Journal of Financial Economics 21 (1988) 3-40
18. Bris A., Welch I., and Zhu N. The costs of bankruptcy: Chapter 7 liquidation versus Chapter 11 reorganization. Journal of Finance 61 (2006) 1253-1303
19. Bulow J., and Klemperer P. Prices and the winner's curse. Rand Journal of Economics 33 (2002) 1-21
20. Campa J., and Kedia S. Explaining the diversification discount. Journal of Finance 57 (2002) 1731-1762
21. Capen E., Clapp R., and Campbell W. Competitive bidding in high-risk situations. Journal of Petroleum Technology 23 (1971) 641-653
22. Comment R., and Schwert W. Poison or placebo? Evidence on the deterrence and wealth effects of modern anti-takeover measures. Journal of Financial Economics 39 (1995) 3-43
23. Cox J., and Isaac M. In search of the winner's curse. Economic Inquiry 22 (1984) 579-592
24. Dasgupta S., and Hansen R. Auctions in corporate finance. In: Eckbo E. (Ed). The Handbook of Corporate Finance: Empirical Corporate Finance (2007), Elsevier, North-Holland, New York 87-143
25. Dyer D., and Kagel J. Bidding in common value auctions: how the commercial construction industry corrects for the winner's curse. Management Science 42 (1996) 1463-1475
26. Fama E. Efficient capital markets: II. Journal of Finance 46 (1991) 1575-1617
27. Fama E., and French K. Common risk factors in the returns of stocks and bonds. Journal of Financial Economics 33 (1993) 3-56
28. Fama E., and French K. Industry costs of equity. Journal of Financial Economics 43 (1997) 153-193
29. Fama E., and Laffer A. The number of firms and competition. American Economic Review 62 (1972) 670-674
30. Fernando C., Gatchev V., and Spindt P. Wanna dance? How firms and underwriters choose each other. Journal of Finance 60 (2005) 2437-2469
31. Fishman M. A theory of preemptive takeover bidding. Rand Journal of Economics 19 (1988) 88-101
32. Franks J., and Harris R. Shareholder wealth effects of corporate takeovers: the UK experience, 1955-1985. Journal of Financial Economics 23 (1989) 225-249
33. French K., and McCormick R. Sealed bids, sunk costs, and the process of competition. Journal of Business 57 (1984) 417-441
34. Ghosh A. Does operating performance really improve following corporate acquisitions?. Journal of Corporate Finance 7 (2001) 151-178
35. Hansen R. Empirical testing of auction theory. American Economic Review 75 (1985) 156-159
36. Hansen R. A theory of choice of exchange medium in mergers and acquisitions. Journal of Business 60 (1987) 75-95
37. Hansen R. Auctions of companies. Economic Inquiry 39 (2001) 30-43
38. Hansen R., and Lott J. The winner's curse and public information in common value auctions: a comment. American Economic Review 81 (1991) 347-361
39. Harford J. Takeover bids and target directors' incentives: the impact of a bid on directors' wealth and board seats. Journal of Financial Economics 69 (2003) 51-83
40. Hechler M. Towards a more balanced treatment of bidder and target shareholders. Columbia Business Law Review 1997 (1997) 319-397
41. Heckman J. Sample selection bias as a specification error. Econometrica 47 (1979) 153-162
42. Hendricks K., and Porter R. An empirical study of an auction with asymmetric information. American Economic Review 78 (1988) 865-883
43. Heron R., and Lie E. Operating performance and the method of payment in takeovers. Journal of Financial and Quantitative Analysis 37 (2002) 137-155
44. Herzel L., and Shepro R. Bidders and Targets: Mergers and Acquisitions in the US (1990), Basil Blackwell, Cambridge, MA
45. Houston J., and Ryngaert M. Equity issuance and adverse selection: a direct test using conditional stock offers. Journal of Finance 52 (1997) 197-219
46. Jarrell G., and Poulsen A. The returns to acquiring firms in tender offers: evidence from three decades. Financial Management 18 (1989) 12-19
47. Kagel J., and Levin D. The winner's curse and public information in common value auctions. American Economic Review 76 (1986) 894-920
48. Kagel J., Levin D., and Harstad R. Comparative static effects of number of bidders and public information on behavior in second-price common value auctions. International Journal of Game Theory 24 (1995) 293-319
49. Kale J., Kini O., and Ryan H. Financial advisors and shareholder wealth gains in corporate takeovers. Journal of Financial and Quantitative Analysis 38 (2003) 475-501
50. Keshk O. CDSIMEQ: a program to implement two-stage probit least squares. Stata Journal 3 (2003) 1-11
51. Klemperer P. Auctions with almost common values: the 'wallet game' and its applications. European Economic Review 42 (1998) 757-769
52. Klemperer P. Auction theory: a guide to the literature. Journal of Economic Surveys 13 (1999) 227-286
53. Klemperer P. What really matters in auction design?. Journal of Economic Perspectives 16 (2002) 169-189
54. Laffont J. Game theory and empirical economics. European Economic Review 41 (1997) 1-35
55. Levin D., and Smith J. Some evidence on the winner's curse: comment. American Economic Review 81 (1991) 370-375
56. Levitt, S., List, J., 2006. What do laboratory experiments tell us about the real world? Unpublished working paper, University of Chicago and National Bureau of Economic Research, Chicago, IL, Cambridge, MA.
57. Li K., and Prabhala N. Self-selection models in corporate finance. In: Eckbo E. (Ed). The Handbook of Corporate Finance: Empirical Corporate Finance (2007), Elsevier, North-Holland, New York 37-86
58. Lowry M., and Shu S. Litigation risk and IPO underpricing. Journal of Financial Economics 65 (2002) 309-335
59. Ma, Q., 2005. Mergers and investment banks: how do banks help targets? Unpublished working paper, Cornell University, Ithaca, NY.
60. Maddala G. Limited Dependent and Qualitative Variables in Econometrics (1983), Cambridge University Press, Cambridge, MA
61. Mandelker G. Risk and return: the case of merging firms. Journal of Financial Economics 1 (1974) 303-335
62. McAfee P., and McMillan J. Auctions and bidding. Journal of Economic Literature 25 (1987) 699-738
63. Mitchell M., Pulvino T., and Stafford E. Price pressure around mergers. Journal of Finance 59 (2004) 31-63
64. Moeller S., Schlingemann F., and Stulz R. Firm size and the gains from acquisitions. Journal of Financial Economics 73 (2004) 201-228
65. Morck R., Shleifer A., and Vishny R. Do managerial objectives drive bad acquisitions?. Journal of Finance 45 (1990) 31-48
66. Mulherin H., and Boone A. Comparing acquisitions and divestitures. Journal of Corporate Finance 6 (2000) 117-139
67. Officer M. Termination fees in mergers and acquisitions. Journal of Financial Economics 69 (2003) 431-467
68. Officer M. Collars and renegotiations in mergers and acquisitions. Journal of Finance 59 (2004) 27192743
69. Officer, M., Poulsen, A., Stegemoller, M., 2008. Information asymmetry and acquirer returns. Review of Finance, forthcoming.
70. Povel P., and Singh R. Takeover contests with asymmetric bidders. Review of Financial Studies 19 (2006) 1399-1431
71. Powell R., and Stark A. Does operating performance increase post-takeover for UK takeovers? A comparison of performance measures and benchmarks. Journal of Corporate Finance 11 (2005) 293-317
72. Rau R. Investment bank market share, contingent fee payments, and the performance of acquiring firms. Journal of Financial Economics 56 (2000) 293-324
73. Roll R. The hubris hypothesis of corporate takeovers. Journal of Business 59 (1986) 197-216
74. Roth A. Game theory as a part of empirical economics. Economic Journal 101 (1991) 107-114
75. Schwert W. Markup pricing in mergers and acquisitions. Journal of Financial Economics 41 (1996) 153-192
76. Schwert W. Hostility in takeovers: in the eyes of the beholder?. Journal of Finance 55 (2000) 2599-2640
77. Servaes H. Tobin's q and the gains from takeovers. Journal of Finance 46 (1991) 409-419
78. Servaes H., and Zenner M. The role of investment banks in acquisitions. Review of Financial Studies 9 (1996) 787-815
79. Smith R. The choice of issuance procedure and the cost of competitive and negotiated underwriting: an examination of the impact of Rule 50. Journal of Finance 42 (1987) 703-720
80. Thaler R. Anomalies: the winner's curse. Journal of Economic Perspectives 2 (1988) 191-202
81. Thiel S. Some evidence on the winner's curse. American Economic Review 78 (1988) 884-895
82. Travlos N. Corporate takeover bids, methods of payment, and bidding firms' stock returns. Journal of Finance 42 (1987) 943-963
83. Varaiya N. The 'winner's curse' hypothesis and corporate takeovers. Managerial and Decision Economics 9 (1988) 209-219
84. Wasserstein B. Big Deal (2000), Warner Books, New York