The effect of reference point prices on mergers and acquisitions
By Malcolm P. Baker, Xin Pan, Jeffrey Wurgler. 2012
397 citations recorded by the source corpus.
Prior stock price peaks of targets affect several aspects of merger and acquisition activity. Offer prices are biased toward recent peak prices although they are economically unremarkable. An offer's probability of acceptance jumps discontinuously when it exceeds a peak price. Conversely, bidder shareholders react more negatively as the offer price is influenced upward toward a peak. Merger waves occur when high returns on the market and likely targets make it easier for bidders to offer a peak price. Parties thus appear to use recent peaks as reference points or anchors to simplify the complex tasks of valuation and negotiation.
Subfields: Accounting, Finance
View Paper: https://www.semanticscholar.org/paper/2879e37714fd3dde0f1981c02315b25a886c29f9
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Citations in the corpus
- A Tough Act to Follow: Contrast Effects in Financial Markets (2018, neutral): “…do not require discontinuous or kinked responses around a reference point (as in prospect theory, with recent empirical applications in, e.g., Baker et al., 2012 and DellaVigna et al., 2014) or a choice framework to identify which reference points to use or where to allocate attention. how…”
- Productivity, Restructuring, And The Gains From Takeovers (2013, neutral): “Many researchers attribute the high premiums to either behavioral distortions (Roll, 1986; Malmendier and Tate, 2008; and Baker, Pan, and Wurgler, 2012) or agency conflicts (Wulf, 2004; and Hartzell, Ofek, and Yermack, 2004).”
- Do Managers Overreact to Salient Risks? Evidence from Hurricane Strikes (2017, background): “, Roll, 1986; Malmendier and Tate, 2005, 2008; Landier and Thesmar, 2009) or reference point thinking (Loughran and Ritter, 2002; Baker et al., 2012; Dougal et al., 2015).”
- Reference-Dependent Preferences: Evidence from Marathon Runners (2014, result): “Baker et al. (2012) showed that stock offer price acceptances bunch at recent peak prices, consistent with recent peaks serving as reference points.”
- Distracted Shareholders and Corporate Actions (2016, positive): “We regress 3-day (−1,+1) bidder abnormal announcement returns on a set of control variables capturing deal, bidder, and target characteristics following Moeller, Schlingemann, and Stulz (2004) and Baker, Pan, and Wurgler (2012).”
- Reference-Dependent Preferences and the Risk-Return Trade-Off (2017, positive): “the low-sentiment subperiods based on the sentiment index of Baker and Wurgler (2006) .”