Arkadiy Sakhartov, Wharton, University of Pennsylvania
Arkadiy Sakhartov, Wharton, University of Pennsylvania
Stock Market Undervaluation of Resource Redeployability
Stock Market Undervaluation of Resource Redeployability
06 Apr 201712:00 PM – 1:30 PM
Faculty and doctoral students only
Location:
Baker Library | Bloomberg Center 103
Organizer:
Resource undervaluation is the key premise of strategic factor market theory. When applied to corporate acquisitions, the premise conflicts with stock market efficiency. The conflict has not been resolved in empirical studies that either assumed or assertively denied target underpricing. This study establishes theoretically the stock market undervaluation of resources. While not considering the corporate acquisition process in its entirety, the study explains when stock markets undervalue firms, thus enabling excess returns to acquirers. The study focuses on a specific source of undervaluation, resource redeployability, the option for an evaluated firm to withdraw its resources from the existing business and switch them to a new business. The explanation is developed using a formal model based on established insights into the implications of ambiguity for valuation.