Reference Point Theory and Pursuit of Deals |
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Authors: | Inga Chira Jeff Madura |
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Affiliation: | 1. California State University‐Northridge;2. Florida Atlantic University |
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Abstract: | Target and bidder reference points have separate and joint effects on merger deals. A firm whose stock price is more distant from its 52‐week high reference point is less likely to attract bids but has a greater likelihood of being acquired by its own managers (vs unaffiliated bidders). Firm propensity to submit a bid increases if its prevailing stock price is closer to its 52‐week high. When both parties’ reference points are close to their current stock prices, they are more willing to complete a deal. Hostile deals result when the bidder's stock price is closer to its reference point. |
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Keywords: | target reference point bidder reference point probability of acquisition MBOs hostile mergers G02 G34 |
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