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Empirical Evidence of Overbidding in M&A Contests

Published online by Cambridge University Press:  06 August 2018

Eric de Bodt ,
Jean-Gabriel Cousin  and
Richard Roll
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Abstract

Surprisingly few papers have attempted to develop a direct empirical test for overbidding in merger and acquisition contests. We develop such a test grounded on a necessary condition for profit-maximizing bidding behavior. The test is not subject to endogeneity concerns. Our results strongly support the existence of overbidding. We provide evidence that overbidding is related to conflicts of interest, but also some indirect evidence that it arises from failing to fully account for the winner’s curse.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 4 , August 2018 , pp. 1547 - 1579
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

The authors address special thanks to Sanjay Bhagat (the referee) for numerous and excellent comments and suggestions, François Derrien, Espen Eckbo, Jarrad Harford (the editor), and Karin Thorburn for their helpful comments, as well as participants at the 2015 Dauphine Finance Seminar, the 2015 European Center for Governance and Control Studies Monday Finance Seminar, the 2015 French Finance Association conference, the 2014 Belgian Corporate Finance Day, and the 2015 European Financial Management Association conference. This research was carried out while the first author was Visiting Associate in Finance at the California Institute of Technology Division of Humanities and Social Sciences.

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