Market Valuation and Merger Waves (2004)
| Venue: | Journal of Finance |
| Citations: | 24 - 2 self |
BibTeX
@ARTICLE{Rhodes-kropf04marketvaluation,
author = {Matthew Rhodes-kropf and S. Viswanathan and Pete Kyle and Augustin L and Costis Maglaras and Jan Mahrt-smith and Mit Mehta and Michael Riordan and David T. Robinson and Tano Santos},
title = {Market Valuation and Merger Waves},
journal = {Journal of Finance},
year = {2004},
pages = {2685--2718}
}
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Abstract
Does valuation affect mergers? Data suggest that periods of stock merger activity are correlated with high market valuations. The naïve explanation that overvalued bidders wish to use stock is incomplete because targets should not be eager to accept stock. However, we show that potential market value deviations from fundamental values on both sides of the transaction can rationally lead to a correlation between stock merger activity and market valuation. Merger waves and waves of cash and stock purchases can be rationally driven by periods of over and under valuation of the stock market. Thus, valuation fundamentally impacts mergers. One of the puzzles in finance is why there are periods when mergers are plentiful and other periods
