Endowment effect in corporate mergers and acquisitions and its impact on takeover premiums

TANG Jian; ZHANG Hong

doi:10.16511/j.cnki.qhdxxb.2020.26.039

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Journal of Tsinghua University(Science and Technology) ›› 2021, Vol. 61 ›› Issue (6) : 565-572. DOI: 10.16511/j.cnki.qhdxxb.2020.26.039

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Endowment effect in corporate mergers and acquisitions and its impact on takeover premiums

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Abstract

The endowment effect is a common behavioral bias in commodity transactions, usually manifested by the owner of an item having a higher evaluation of the item’s worth than the buyer. This study used a multivariate regression analysis to analyze 425 takeovers from 2010—2018 in which both parties were U.S. listed companies to study the endowment effect in mergers and acquisitions and its impact on the takeover premiums. The results show that there is an endowment effect that significantly increases the takeover premiums with the impact varying in different industries and being more prominent in emerging industries. The acquirers should fully consider the high takeover cost caused by the endowment effect when evaluating the target company. Policy makers should pay attention to the welfare loss caused by the endowment effect when making industry organization policies.

Key words

endowment effect / takeover premiums / multiple regression

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TANG Jian, ZHANG Hong. Endowment effect in corporate mergers and acquisitions and its impact on takeover premiums[J]. Journal of Tsinghua University(Science and Technology). 2021, 61(6): 565-572 https://doi.org/10.16511/j.cnki.qhdxxb.2020.26.039

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