Resource title

Does patience pay?: empirical testing of the option to delay accepting a tender offer in the US banking sector

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Resource description

We examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the U.S. banking sector. We provide estimates for the option value that the target bank has in waiting for a higher bid instead of accepting an initial tender offer. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of almost 12.5% for a sample of 424 mergers and acquisitions between 1997 and 2005 in the U.S. banking industry. Regression analysis reveals that the option price is related to both the price to book market and the free cash flow of target banks. We conclude that it is certainly in the shareholders best interest if subsequent offers are awaited.

Resource author

Rachel A. Campbell, Roman Kräussl

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25498

Resource license

Adapt according to the presented license agreement and reference the original author.