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The impact of mispricing and growth on UK M&As

Coakley, J and Gazzaz, H and Thomas, H (2017) 'The impact of mispricing and growth on UK M&As.' European Journal of Finance, 23 (13). 1219 - 1237. ISSN 1351-847X

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Abstract

This paper investigates the impact of mispricing and growth on salient aspects of 434 UK merger and acquisition (M&A) deals over the 1990-2009 period. Mispricing is proxied by both the 26-week high price and misvaluation given the deviation of target price from its estimated fundamental value. One or both of these variables has a significantly pervasive influence on all aspects of M&As studied. The target 26-week high price, misvaluation and growth all have a significant effect on both the offer premium and whether bidders pay with cash or stock for the full sample. The 26-week high price is the main driver for the overvalued (price exceeds value) target sub-sample and growth prospects for the undervalued target sub-sample. Short run abnormal returns around the announcement are driven by misvaluation only while offers in excess of the 26-week high and of fundamental value increase the probability of deal success.

Item Type: Article
Uncontrolled Keywords: Undervaluation; overvaluation; psychological reference points; mergers
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Jerry Coakley
Date Deposited: 30 Jun 2016 12:48
Last Modified: 01 Mar 2018 16:15
URI: http://repository.essex.ac.uk/id/eprint/17024

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