Abstract
The dynamics of the physical probability of firms that undertake a stock swap merger is developed through a simple model. Using a sample of 1090 deals from 1992 to 2008, we show how movements in target stock prices are informative of the success or failure of a stock swap merger and how movements in bidder stock prices are informative at the beginning of the deal period . Without any assumption on the convergence of the target stock price to the bid offer, our results share the findings of Samuelson and Rosenthal (1986). According to our results bidder and target price movements represent the thermometer of a deal status.
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