Dissertation/Thesis Abstract

Target stock price runup prior to acquisitions
by Brigida, Matthew David, Ph.D., Florida Atlantic University, 2009, 205; 3392032
Abstract (Summary)

Information leakage before full acquisitions has been widely documented. The information leakage, and the resulting pre-bid runup in the target's stock, generally increases the total cost of the acquisition. That is, information leakage and the ensuing pre-bid runup is a gain to the target and loss to the acquirer. Herein, I first ascertain the characteristics of full acquisitions that affect the amount of information leakage. I find that if the acquirer borrows to finance the acquisition then information leakage is greater. Further if the acquirer is foreign, if the target is a high-tech firm, and if the target has options on its stock all increase information leakage. I find hostile deals are effective in reducing information leakage. Lastly, information leakage increases in the percentage of managerial ownership. I next hypothesize that the identity and intent of partial acquirers is known to market participants before the announcement of a partial acquisition. I find that the market can anticipate whether a partial acquirer intends to fully-acquire or take an active role in the management of the target. Also, the market anticipates whether the acquirer is a private investment find or a non-financial corporation. Further, the acquirer's identity or intent is fully reflected in the target's stock price before the announcement of the partial acquisition. These results help explain why there are few partial acquisitions as precursors to full acquisitions. I next hypothesize that macroeconomic factors affect information leakage, and may serve as a signal of when to speculate on acquisitions. I find that information leakage is positively related to shocks in both expected economic conditions and financing costs, the latter signaling to speculators that acquisitions are imminent. I also find information about an imminent full acquisition is leaked earlier when there are positive shocks to economic conditions and financing costs.

Indexing (document details)
Advisor: Madura, Jeff
School: Florida Atlantic University
School Location: United States -- Florida
Source: DAI-A 71/01, Dissertation Abstracts International
Subjects: Finance
Keywords: Informed trading, Insider trading, Mergers and acquisitions, Partial acquisitions, Price runup, Target stock price
Publication Number: 3392032
ISBN: 978-1-109-57633-7
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