Publications
Publications
- 2015
- HBS Working Paper Series
Initial Offer Precision and M&A Outcomes
By: Petri Hukkanen and Matti Keloharju
Abstract
Building on recent research in social psychology, this paper analyzes the link between the precision of initial cash offers and M&A outcomes. About one-half of the offers are made at the precision of $1 or $5 per share, and an additional one-third at the precision of half dollar or one quarter. The practice of making offers at round price-per-share levels is associated with the following unfavorable outcomes for the bidder: (1) higher purchase price for target shares, (2) lower probability to complete the deal, and (3) lower announcement return. A median-sized offer made at the precision of $1 or $5 per share is associated with a $4 to $5 million higher expected transaction price than one made at a precision greater than one quarter.
Keywords
Citation
Hukkanen, Petri, and Matti Keloharju. "Initial Offer Precision and M&A Outcomes." Harvard Business School Working Paper, No. 16-058, November 2015.