Misvaluation: Driver of the Takeover market?
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School of Business |
Bachelor's thesis
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Authors
Date
2019
Department
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Mcode
Degree programme
Rahoitus
Language
en
Pages
30
Series
Abstract
This paper examines the time-variation of the misvaluation hypothesis – that inefficient stock market misvaluation is an important driver of the takeover market - in the U.S. takeover market during the years 1978-2017. The main focus is on the financial crisis of 2008, and its effects on the misvaluation hypothesis. Price-to-book value of equity and price-to-residual income model are used as misvaluation proxies. This paper is providing clear evidence that the misvaluation hypothesis is not as strong in the post-2000 period compared to the pre-2000 period. This challenges the misvaluation driven M&A theories (Shleifer and Vishny, 2003; Rhodes-Kropf and Viswanathan, 2004) since during the post-2000 years higher acquirer valuation is associated with cash as a payment method and lower valuation ratios with stock as a payment method. My results are robust for additional tests and controls.Description
Thesis advisor
Shin, SeanKeywords
M&A, Misvaluation, Time-Series Variation, Market Efficiency, Financial Crisis