The Underpricing of Private Targets
42 Pages Posted: 13 Oct 2005 Last revised: 13 Aug 2008
Abstract
We examine acquisitions of private firms with valuation histories and find a positive relation between acquirer announcement returns and target valuation revisions. Similar to other studies, acquirer announcement returns are positive, on average. However, positive acquirer announcement returns are mainly driven by targets that are acquired for more than their prior valuation. This relation is consistent with pricing effects associated with target valuation uncertainty and behavioral biases in negotiation outcomes.
Keywords: Private acquisitions, Withdrawn IPOs, Underpricing, Valuation uncertainty
JEL Classification: G24, G34
Suggested Citation: Suggested Citation
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