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Using option prices to infer overpayments and synergies in m&a transactions

Publication ,  Journal Article
Barraclough, K; Robinson, DT; Smith, T; Whaley, RE
Published in: Review of Financial Studies
March 1, 2013

In this paper, we use call option prices to identify synergies and news from merger and acquisition (M&A) transaction announcements. We find that M&A announcements result in large and approximately equal gains to the bidder and the target on average, with the combined gains being large enough to justify the premium paid to target shareholders. On average, M&A announcements release good news about targets, but bad news about bidders. This suggests that market prices understate true synergy gains, and helps reconcile the generally negative market-based evidence on value-creation in takeovers with their continued prominence in everyday business strategy. © 2012 The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com.

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Published In

Review of Financial Studies

DOI

EISSN

1465-7368

ISSN

0893-9454

Publication Date

March 1, 2013

Volume

26

Issue

3

Start / End Page

695 / 722

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
  • 1401 Economic Theory
 

Citation

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Barraclough, K., Robinson, D. T., Smith, T., & Whaley, R. E. (2013). Using option prices to infer overpayments and synergies in m&a transactions. Review of Financial Studies, 26(3), 695–722. https://doi.org/10.1093/rfs/hhs119
Barraclough, K., D. T. Robinson, T. Smith, and R. E. Whaley. “Using option prices to infer overpayments and synergies in m&a transactions.” Review of Financial Studies 26, no. 3 (March 1, 2013): 695–722. https://doi.org/10.1093/rfs/hhs119.
Barraclough K, Robinson DT, Smith T, Whaley RE. Using option prices to infer overpayments and synergies in m&a transactions. Review of Financial Studies. 2013 Mar 1;26(3):695–722.
Barraclough, K., et al. “Using option prices to infer overpayments and synergies in m&a transactions.” Review of Financial Studies, vol. 26, no. 3, Mar. 2013, pp. 695–722. Scopus, doi:10.1093/rfs/hhs119.
Barraclough K, Robinson DT, Smith T, Whaley RE. Using option prices to infer overpayments and synergies in m&a transactions. Review of Financial Studies. 2013 Mar 1;26(3):695–722.
Journal cover image

Published In

Review of Financial Studies

DOI

EISSN

1465-7368

ISSN

0893-9454

Publication Date

March 1, 2013

Volume

26

Issue

3

Start / End Page

695 / 722

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
  • 1401 Economic Theory