Cristin-prosjekt-ID: 493014
Sist endret: 23. november 2015, 14:41

Cristin-prosjekt-ID: 493014
Sist endret: 23. november 2015, 14:41
Prosjekt

Acquirer Termination Fee and Stock Market Feedback

prosjektleder

Øyvind Norli
ved Institutt for finans ved Handelshøyskolen BI

prosjekteier / koordinerende forskningsansvarlig enhet

  • Institutt for finans ved Handelshøyskolen BI

Tidsramme

Avsluttet
Start: 17. februar 2014 Slutt: 29. januar 2018

Beskrivelse Beskrivelse

Tittel

Acquirer Termination Fee and Stock Market Feedback

Vitenskapelig sammendrag

The various versions of the market efficiency hypothesis state that security prices reflect available information. This view is consistent with a mechanism where information is processed by traders and that their trading activities in turn embed this information into prices. The traditional view is that the process through which prices gets informative ends here. A recent literature has investigated the possibility that corporate managers pay attention to stock prices and adjust their corporate decision in accordance with what they learn. When managerial decisions is affected by prices, there will be a feedback loop between prices and decisions that may impact the degree of market efficiency. Edmans and Goldstein (2011) argue that feedback between prices and decisions may deter speculators from trading on private information. In a merger setting, the intuition for their argument is simple. If speculators have negative information about a potential merger transaction, they will short the buyer. But, if the managers of the buyer listen to the market, they will realize that the deal is bad and cancel the transaction. This leaves the speculators with a loosing short position. Thus, the speculators will be reluctant to short the stock in the first place. The outcome is that bidder price does not reflect as much negative information as is available to speculators. In other words, markets are not informationally efficient.

The main contribution of the proposed research is to provide empirical evidence on the existence of the feedback mechanism studied in Edmans and Goldstein (2011). Using a sample of merger announcements, we plan to compare the information content of post announcement stock prices for bidders committed to pay an termination fee with the corresponding measure for bidders without such commitment. Bidders for which it is more costly to cancel the transaction is less likely to cancel. Consequently, speculators are more likely to trade on their negative information and prices should be more informative. Edmans and Goldstein (2011) show that bidder cancellation cost will have such an effect and mention bidder termination fee as an example of cancellation costs.

Tittel

Oppkjøp og feedback

prosjektdeltakere

prosjektleder

Øyvind Norli

  • Tilknyttet:
    Prosjektleder
    ved Institutt for finans ved Handelshøyskolen BI
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