Table 10

Regressions of the total abnormal stock return received by the stockholders of the first bidder firm (Premiumib) on the pre-bid runup for the target firm (Runupi) and for the bidder firm (Runupib) for various samples of successful mergers and tender offers for exchange-listed target firms, 1975-91:

Premiumib = a + b Runupib + c Runupi + ui,

where Premiumib = Runupib + Markupib. Runupib (Runupi) is the cumulative abnormal return to the bidder's (target's) stock from day -42 to day -1 relative to the first bid. Markupib is the cumulative abnormal return to the bidder's stock from the day of the first bid through delisting or 126 trading days after the first bid, whichever comes first. This regression shows the effect of pre-bid runup in the target's stock price on the price of the bidder's stock. If the hubris hypothesis that bidders pay too much is related to the size of the target's runup, the estimates of c should be reliably negative. S(u) is the standard error of the regression and Rsquared is the adjusted coefficient of determination. White's (1980) heteroskedasticity-consistent standard errors are used to compute the t-statistics.

SampleProportion of SampleSample Size, N Bidder Runup Coef, bT-statistic, t(b=1) Target Runup Coef, cT-statistic, t(c=0) Constant, aT-statistic, t(a=0) S(u)Rsquared
All deals9150.9190.980.0030.060.0090.990.1460.107
Main sample7900.8741.460.0561.360.0161.780.1470.116
No news57.30%4530.8541.530.0781.520.0020.220.1220.131
No pill88.20%6970.8361.900.0631.500.0191.850.1500.099
No auction79.20%6260.7802.500.1172.800.0171.660.1470.094
Tender offers40.30%3180.9550.310.0100.130.0271.590.1750.185
No insider89.40%7060.8611.500.0491.160.0161.690.1410.106

© Copyright 1996, G. William Schwert
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