Empirical Evidence of Overbidding in M&A Contests

Paper Number: 
1426
Creation date: 
11/15/2016
Abstract: 

Surprisingly few papers have attempted to develop a direct empirical test for overbidding in M&A contests. We develop such a test grounded on a necessary condition for profit maximizing bidding behavior.  The test is not subject to endogeneity concerns.  Our results strongly support the existence of overbidding.  We provide evidence that overbidding is related to conflicts of interest, but also some indirect evidence that it arises from failing to fully account for the winner's curse.

Paper Length: 
61
Keywords: 
mergers and acquisitions, hubris hypothesis; overbidding