What determines takeover premia: An empirical analysis

We empirically analyze the determinants of takeover premia overthe period of 1985-2005 and investigate four different factorsaffecting these premia over the sample period. Our results can besummarized as follows. First, takeover premia were affected bymarket misvaluation: they were higher during periods of investorpessimism and market under valuation and were lower duringperiods of investor optimism and market overvaluation. Consistent with the above result, takeover premia were also negatively related to prior stock market return and positively related to stock market volatility. Second, takeover premia exhibited momentum, being positively correlated with the premia paid in other takeoversin the recent past. Third, takeovers which involved firms in regulated industries immediately prior to deregulation events wereassociated with significantly lower premia, while premia paid intakeovers which involved firms in deregulated industries afterderegulation events were not significantly different from those inother industries. Finally, takeovers of firms in industries with excesscapacity and too many firms (industries going through consolidation) commanded higher premia compared to takeovers in otherindustries. (C) 2014 Elsevier Inc. All rights reserved.