Abstract: This paper studies the premiums paid in successful tender offers and mergers involving NSE and Amex-listed target firms from 1975-91 in relation to pre-announcement stock price runups. It has been conventinoal to measure corporate control premiums including the price runups that occur prior to the initial formal bid. There has been little evidence on the relation between the pre-bid runup and the post- announcement markup (the increase in the stock price measured from the date of the first bid). Under what circumstances are runups associated with larger total premiums? The evidence in this paper shows that in most cases, the pre-bid runup and the post-announcement markup are uncorrelated (i.e., little or no substitution between the runup and the post-announcement markup), so the runup is an added cost to the bidder. This has important implications for assessing the costs of illegal insider trading based on private information about a potential bid.
Publication Year: 1994
Publication Date: 1994-09-01
Language: en
Type: article
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Cited By Count: 18
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