The Securities and Exchange Commission has asked ¶¶ÒõÂÃÐÐÉä-Boulder finance Professor Sanjai Bhagat to give a presentation on takeovers in Washington, D.C., on Friday, Nov. 6.
In his recent paper, "Do Takeovers Create Value? Evidence from the Intervention of Competing Bids," Bhagat and co-authors David Hirshleifer of the University of Michigan and Robert Noah of the Milken Institute examine the extent to which takeovers improve target and bidder firm value.
The researchers use a model based on stock returns of initial bidders when a competing bid occurs. They use data from 1962 to 1997.
In general, Bhagat said corporations that bid to take over other organizations offer to pay more than the deal is actually worth. Thus, their stock prices go down.
"The SEC is interested in this material partly because of current cases, but mostly for general policy-making advice," Bhagat said.
By sharing this information and presentation with ¶¶ÒõÂÃÐÐÉä undergraduates prior to his Washington visit, Bhagat is bringing ¶¶ÒõÂÃÐÐÉä's Total Learning Environment to life. "One day the students hear it, and the next the SEC hear it," Bhagat said, noting that academic research previously took years – even decades – to have an impact in the working world.
In the paper, the researchers present five main results:
1. Investors positively perceive cash offers.
2. The perceived value is much larger than estimates based on initial bid returns.
3. There is no evidence that bidders profit from buying targets.
4. Average estimated value improvements are similar pre- and post-Williams Act and associated legislation.
5. Estimated value improvements are smaller for hostile transactions.