Table 9

Regressions of the total premium paid to target stockholders (Premium) on the pre-bid runup for the target firm (Runup) and for the bidder firm (Runup_B) for various samples of successful mergers and tender offers for exchange-listed target firms, 1975-91:

Premium = a + b Runup + c Runup_B + u,

where Premium = Runup + Markup. Runup (Runup_B) is the cumulative abnormal return to the target's (bidder's) stock from day -42 to day -1 relative to the first bid. Markup is the cumulative abnormal return to the target's stock from the day of the first bid through delisting or 126 trading days after the first bid, whichever comes first. The substitution hypothesis implies b < 1, while the markup pricing hypothesis implies b = 1. The average 42-day runup for the target (bidder) is in the sixth (fourth) column from the right and the average 127-day markup for the target (bidder) is in the fifth (third) column from the right. S(u) is the standard error of the regression and is the adjusted coefficient of determination. White's (1980) heteroskedasticity-consistent standard errors are used to compute the t-statistics.

Proportion of SampleSample Size,NTarget Runup Coef, bT-stat, t(b=1) Bidder Runup Coef, cT-stat, t(c=0)Constant, aT-stat, t(a=0) Avg Target RunupAvg Target MarkupAvg Bidder Runup_BAvg Bidder Markup_B S(u)Rsquared
All deals9151.0050.080.1031.180.1057.660.1460.1070.0120.0110.2870.32
Main sample7900.9730.450.0850.910.1188.120.1470.1160.0150.0100.2740.32
Successful84.30%6660.9680.640.0420.440.15111.040.1530.1470.0160.0020.2510.35
Unsuccessful15.70%1240.8560.570.1800.820.0360.810.1160.0510.0100.0530.3300.22
News42.70%3371.0390.520.1240.870.0864.210.1810.0950.0160.0370.2660.38
No news57.30%4530.9380.680.0550.450.1386.990.1220.1310.0150.0100.2790.27
Pill11.80%930.9300.250.1560.690.2434.540.1260.2390.0300.0010.3100.26
No pill88.20%6970.9920.160.0500.510.1007.260.1500.0990.0130.0110.2650.34
Auction20.80%1640.6571.660.5261.990.2486.020.1460.1990.0020.0350.3380.15
No auction79.20%6261.0320.650.0050.050.0896.480.1470.0940.0190.0040.2480.40
Tender offer40.30%3180.8472.170.1491.440.20910.600.1750.1850.0170.0250.2400.30
Mergers59.70%4720.9860.160.0530.420.0703.680.1280.0690.0140.0340.2850.32
MBOs2.90%230.8320.910.4331.410.0771.500.1440.0680.0360.0900.1840.40
Cash49.10%3880.8971.530.0960.830.1709.610.1550.1550.0120.0070.2620.30
Equity26.30%2080.9770.140.0060.030.1013.240.1100.0980.0190.0450.2930.30
Insider10.60%840.6132.560.1260.520.2696.310.2000.1940.0240.0000.2170.12
No insider89.40%7060.9800.310.0760.780.1087.110.1410.1060.0140.0110.2780.33

© Copyright 1996, G. William Schwert
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