Bidder discounts and target premia in takeovers

Boyan Jovanovic, Serguey Braguinsky

    Research output: Contribution to journalArticle

    Abstract

    On news of a takeover, the sum of the stock market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet upon news of a takeover, a target's price rises, the bidder's price falls, and most of the time the joint value of the target and acquirer also falls.

    Original languageEnglish (US)
    Pages (from-to)46-56
    Number of pages11
    JournalAmerican Economic Review
    Volume94
    Issue number1
    DOIs
    StatePublished - Mar 2004

    ASJC Scopus subject areas

    • Economics and Econometrics

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