Target stock price runups prior to acquisitions and relation to takeover premiums - Evidence from the U.K.

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en Tiiri, Kalle 2015-12-16T08:18:07Z 2015-12-16T08:18:07Z 2015
dc.description.abstract The purpose of this thesis is to examine factors affecting target stock price runups prior to acquisition announcements, which are widely believed to be attributable to leakage of insider information before the bids. Moreover, my aim is to further investigate whether the runups affect takeover premiums paid for the target companies. Finally, my objective is to study the effect of toehold purchases on takeover premiums and test whether they are harmful for the acquirers in terms of increased takeover premiums. The data used in this study covers 1182 M&A announcements from U.K. between January 1990 and December 2013. The data is obtained from SDC Platinum (M&A announcements, deal characteristics), Datastream (stock prices) and Worldscope (financial data). I use standard event study methodology in conducting the research and calculate cumulative abnormal returns for the runup calculation (-42,-1 trading days relative to the initial control bid) and markup calculation (0, delisting/126 trading days). Target runup is the dependent variable in the runup determinant regressions and target markup is the dependent variable in most regressions regarding the relation between target stock price runups and takeover premiums. The effect of toehold purchases is examined along with the multiple regressions measuring the relation between target runups and takeover premiums. The results suggest that the targets earn on average 14.3% positive abnormal return during the pre-bid runup period, which is higher compared to results from earlier studies. Several factors have statistically and economically significant effect on the magnitude of the runup, e.g. for all- cash deals the runup is on average 10.0 percentage points higher than for all-stock deals and multiple bidders increase the runup 14.2-17.8 percentage points depending on the regression model used. Furthermore, significant proportion of the runup increase is increasing the markup, which increments the premium paid for the target. The results indicate that the target runups and bidder markups are essentially independent implying the runup phenomenon is a costly feature for the bidding companies. Finally, I do not find evidence for my last hypothesis regarding toehold purchases. en
dc.format.extent 64
dc.language.iso en en
dc.title Target stock price runups prior to acquisitions and relation to takeover premiums - Evidence from the U.K. en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.contributor.department Department of Finance en
dc.subject.keyword mergers and acquisitions
dc.subject.keyword stock price runup
dc.subject.keyword takeover premium
dc.subject.keyword toehold purchase
dc.subject.keyword insider trading
dc.identifier.urn URN:NBN:fi:aalto-201512165817
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon yrityskaupat
dc.subject.helecon corporate acquisitions
dc.subject.helecon osakemarkkinat
dc.subject.helecon stock markets
dc.subject.helecon osakkeet
dc.subject.helecon shares
dc.subject.helecon tuotto
dc.subject.helecon rate of return
dc.subject.helecon sisäpiirikauppa
dc.subject.helecon insider trading
dc.ethesisid 14198 2015-12-04
dc.location P1 I

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