Abstract
This paper demonstrates that the measurement of investor reactions to bidder offers is intimately affected by the endogenous nature of bidding. Bidding activity is not random. Offers are made at times that suit bidders. We show that bidder characteristics before an offer differ markedly from those of other firms and that these differences significantly impact on naïve inferences of shareholder reactions to an offer. When appropriate adjustments are made to properly control for pre-offer characteristics, bidding shareholders are found to enjoy significant wealth increases.
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