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Takeovers and Divergence of Investor Opinion

Authors: John, Kose
Chatterjee, Sris
Yan, An
Issue Date: 13-Sep-2011
Series/Report no.: FIN-11-006
Abstract: We test several hypotheses on how takeover premium is related to investors’ divergence of opinion on the target’s equity value. We show that the total takeover premium, the pre-announcement target stock price runup and the post-announcement stock price markup are all higher when investors have higher divergence of opinion. Identical results obtain with higher market-level investor sentiment. When divergence of opinion is higher, a firm is less likely to be a takeover target, although takeover synergy in successful takeovers is higher. Our results suggest that takeovers may play a role in explaining high contemporaneous stock prices in the presence of high divergence of investor opinion.
Appears in Collections:Finance Working Papers

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