Premium Price of M&A: The Effects of Low to High Valuation Mergers on Market Value
Open Access
Author:
Wang, Kristine
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Stefan M Lewellen, Thesis Supervisor Brian Spangler Davis, Thesis Honors Advisor
Keywords:
M&A Mergers and Acquisitions Firm Firm Value Acquirer Target Industry Valuation P/B Price to Book
Abstract:
This paper examines mergers and acquisitions (M&A) activity across different low price-to-book (P/B) industries to high-P/B industries’ interactions and the effects on post-deal firm value. I find that acquiring firms (‘acquirers’) tend to gravitate towards buying target firms (‘target’) that fall under the abnormal high-P/B category relative to their industry and that the likelihood of acquisition in those high-P/B target firms increases when the acquirer firm itself is overperforming. This study is the first to provide evidence linking acquirers’ and targets’ relative valuations to acquisition likelihood and post-completion acquirer returns.
