Joint work with Pascal Büsing, Nils Lohmeier, and Hannes Mohrschladt

Abstract: We study the effect of targets' 52-week highs on offer prices in a global sample of mergers and acquisitions across 33 countries. Our results confirm that targets' past stock price peaks serve as an anchor in merger negotiations, albeit at varying magnitudes across different countries. We explain these cross-country differences through a simple framework in which target shareholders incentivize managers to consider an economically immaterial anchor. As predicted by our theoretical framework, the effect of a target's 52-week high on its offer price is most pronounced in countries characterized by stringent corporate governance, stronger legal protections for shareholders, and cultures prone to anchoring. Our results illustrate how corporate governance can exacerbate inefficiencies in the market for corporate control when shareholder beliefs are biased.

Available at SSRN