Search results

1 – 2 of 2
Per page
102050
Citations:
Loading...
Access Restricted. View access options
Article
Publication date: 30 June 2023

Ying Huang, Xiankui Hu, Kenneth Hunsader and Steven Xiaofan Zheng

The authors of this study aim to investigate possible explanations of the prevalence of price clustering in the final offer prices of mergers and acquisitions (M&A).

148

Abstract

Purpose

The authors of this study aim to investigate possible explanations of the prevalence of price clustering in the final offer prices of mergers and acquisitions (M&A).

Design/methodology/approach

The authors use final offer price in M&A deals to investigate the price clustering phenomena. The authors used regressions and logistic regressions to examine potential factors that might affect pricing strategy by looking into one-time acquirers and experienced serial acquirers.

Findings

Price clustering increases with negotiation uncertainties characterized as competitive bidding, number of bidders, challenged deals and duration. Moreover, the authors find persistent price clustering in experienced serial acquirers that are more experienced and better equipped with handling uncertainties, suggesting a preference of using round numbers regardless of levels of uncertainties. The authors' evidence shows that price clustering results from a combination of Harris' (1991) costly negotiation hypothesis where round prices may be used to lower search costs and psychological bias and preference.

Originality/value

The authors appear to be the first to investigate alternative theories that support M&A offer price clustering behavior, finding that both the costly negotiation and psychological bias and preference theories apply to M&A final price formation. Thus, the authors' major contribution, specific to the M&A process, is a clarification of physical and psychological factors associated with bidding and negotiation behavior. The authors are confident that the authors' study impacts conventional knowledge regarding M&A deal negotiation strategies, including bidding behavior, contract negotiation, financial analysis, management practices and risk management.

Details

Managerial Finance, vol. 49 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Access Restricted. View access options
Article
Publication date: 12 August 2014

Qin Lei, Murli Rajan and Xuewu Wang

The purpose of this paper is to investigate how insiders’ trades are executed and whether and how outside investors can mimic outperforming insiders and reap substantial portfolio…

4940

Abstract

Purpose

The purpose of this paper is to investigate how insiders’ trades are executed and whether and how outside investors can mimic outperforming insiders and reap substantial portfolio returns that withstand the erosion from adjustments for both the standard factors and stock characteristics in the asset pricing literature.

Design/methodology/approach

The authors design a metric for measuring insiders’ trade execution quality: the trading alpha. The authors run regression analysis to control for trade difficulty, insider reputations and the corporate role ranks of insiders and document the existence of the abnormal trading alpha. The authors further form portfolios based on the abnormal trading alpha and document a significant abnormal return that is robust to both standard asset pricing factors model and the stock characteristics adjustments.

Findings

Outperforming insiders at the aggregate level resemble value investors who trade on long-term fundamental information, trade patiently and earn rents from providing liquidity. Outside investors can mimic the outperforming insiders and reap significant abnormal portfolio returns.

Research limitations/implications

Data limitations on insider trades and their association/interaction with their brokers prevent us from having a conclusive investigation of the trading skill hypothesis. The authors hope to further research along the lines of the trading skill hypothesis as compared to investment style hypothesis with more detailed data about the brokers used by insiders.

Practical implications

The findings can be applied for money management profession in that outsider investors can monitor the trading execution and construct portfolios based on the adjusted abnormal trading alpha. The resulting portfolio has been documented to be highly profitable after risk adjustments using standard asset pricing factors as well as stock characteristics.

Social implications

Professional money managers and outsider investors should be able to benefit from the findings in this paper and use the proposed trading alpha metric to construct and rebalance real-time investment portfolios.

Originality/value

Outperforming insiders at the aggregate level resemble value investors who act on long-term fundamental information, trade patiently and earn rents from providing liquidity. From the perspective of investment implications, outside investors can mimic the outperforming insiders and reap substantial portfolio returns that withstand the erosion from adjustments for both the standard factors and stock characteristics in the asset pricing literature.

Details

China Finance Review International, vol. 4 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

1 – 2 of 2
Per page
102050