The impact of investor sentiment driven misvaluation to the method of payment in mergers and acquisitions

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.advisor Kaustia, Markku
dc.contributor.advisor Keloharju, Matti
dc.contributor.author Mattila, Teemu
dc.date.accessioned 2017-08-17T13:44:18Z
dc.date.available 2017-08-17T13:44:18Z
dc.date.issued 2017
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/27819
dc.description.abstract Objectives of the study This thesis examines the effect of investor sentiment driven misvaluation on the method of payment decisions in mergers and acquisitions. It aims to establish a link between empirical asset pricing studies on investor sentiment and corporate finance literature on misvaluation driven M&A theories by using a new investor sentiment based proxy for overvaluation of the bidder and the target. The first objective of this study is to test whether bidders and targets of M&A transactions display signs of overvaluation, measured with the new investor sentiment based overvaluation proxy when split into sub-groups by the method of payment. The second objective is to examine whether the new overvaluation proxy has an impact on the probability of a transaction being financed with equity (vs. cash) when controlling for factors impacting the method of payment decision from previous literature, such as growth and investment opportunities, asymmetric information, cash availability, intra-industry transaction, deal attitude, and target type, in a multivariate setting. Data and methodology The univariate (multivariate) data set consists of 14,436 (10,868) public bidder M&A announcements in the US during 1978-2011, is obtained from the SDC M&A database, and cleaned according to Pinkowitz et al.’s (2011) data correction list as the authors report inconsistencies in the SDC method of payment data. New overvaluation proxy variable is constructed using a combination of the level and the change in investor sentiment index, as well as sentiment-betas building upon the work of Baker and Wurgler (2006, 2007, 2012) on investor sentiment. Univariate tests are used to examine the significance of the differences between the average overvaluation variables of bidders and targets in different method of payment groups (i.e. stock vs. cash). Also, the significance of differences between average overvaluation variables by various other takeover characteristics based sub-groups is tested for robustness. Finally, multivariate logistic regressions are conducted to investigate the effect of investor sentiment based overvaluation variable to the probability of a transaction being financed with equity (vs. cash) to control for other known factors affecting the method of payment decision. Findings of the study The results of my analyses provide strong support for the hypotheses and are in line with the main predictions of the misvaluation driven M&A theories of Shleifer and Vishny (2003), and Rhodes-Kropf and Viswanathan (2004) – stock-bidders display signs of significantly higher overvaluation in relative to cash-bidders, targets of transactions financed with equity display signs of significantly higher overvaluation in relative to targets of transactions financed with cash, and, in a multivariate setting, the higher the investor sentiment based overvaluation variable of the bidder, the higher the probability of the takeover being financed with equity. However, the most intriguing result of this study is that targets display signs of higher overvaluation in comparison to bidders which is contrary to the predictions of the misvaluation driven M&A theories and most of the existing empirical evidence. This result indicates towards bidder shareholders are failing to profit from such transactions given the relative misvaluation difference is unfavorable for them. In other words, bidders seem to use their overvalued equity to acquire relatively more overvalued targets. en
dc.format.extent 103
dc.language.iso en en
dc.title The impact of investor sentiment driven misvaluation to the method of payment in mergers and acquisitions en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.subject.keyword investor sentiment en
dc.subject.keyword method of payment en
dc.subject.keyword overvaluation driven M&A en
dc.subject.keyword behavioral finance en
dc.identifier.urn URN:NBN:fi:aalto-201708176724
dc.type.ontasot Master's thesis en
dc.type.ontasot Maisterin opinnäyte fi
dc.programme Finance en
dc.subject.helecon rahoitus fi
dc.subject.helecon yrityskaupat fi
dc.subject.helecon sijoittajat fi
dc.subject.helecon arviointi fi
dc.subject.helecon virhe fi
dc.subject.helecon behavioral finance en
dc.ethesisid 16021
dc.location P1 I fi


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