Initial Offer Precision and M&A Outcomes

Petri Hukkanen · Matti Keloharju

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Corporate Finance and Governance Financial Markets and Investment Strategies Merger and Competition Analysis

Abstract

Abstract Building on recent research in social psychology, this paper analyzes the link between the precision of initial cash offers and mergers and acquisition (M&A) outcomes. About one‐half of the offers are made at the precision of one or five dollars per share, while an additional one‐third are made at the precision of a half dollar or one quarter. The practice of making offers at round price‐per‐share levels is associated with a higher purchase price for target shares and a lower probability of deal completion.

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References

1974Judgment under Uncertainty: Heuristics and Biases 1975Judgment under Uncertainty: Heuristics and Biases 2002Illiquidity and stock returns: cross-section and time-series effects 2004Firm size and the gains from acquisitions 2002What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions 1988Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms 2003"Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences 1987Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions

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