Does patience pay? : empirical testing of the option to delay accepting a tender offer in the U.S. banking sector

We examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the U.S. banking sector. We provide estimates for the option value that the target bank has 
We examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the U.S. banking sector. We provide estimates for the option value that the target bank has in waiting for a higher bid instead of accepting an initial tender offer. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of almost 12.5% for a sample of 424 mergers and acquisitions between 1997 and 2005 in the U.S. banking industry. Regression analysis reveals that the option price is related to both the price to book market and the free cash flow of target banks. We conclude that it is certainly in the shareholders best interest if subsequent offers are awaited. JEL Classification: G34, C10
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Metadaten
Author:Rachel A. Campbell, Roman Kräussl
URN:urn:nbn:de:hebis:30-38065
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2006,32
Series (Serial Number):CFS working paper series (2006, 32)
Document Type:Working Paper
Language:English
Year of Completion:2006
Year of first Publication:2006
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2007/02/23
Tag:Mergers and Acquisitions; Option-pricing Model; U.S. Banking Industry
SWD-Keyword:Bank; Geduld; USA; Übernahmeangebot
Issue:Preliminary Version, September 26, 2006
Pagenumber:36
HeBIS PPN:190332239
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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