Anchoring in Mergers and Acquisitions: Does the Regulatory Environment Matter?

Ranganathan, Kavitha and Singh, Poonam (2016) Anchoring in Mergers and Acquisitions: Does the Regulatory Environment Matter? T A Pai Management Institute, Manipal.

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Abstract

Anchoring to target’s 52-week high price is ubiquitous while determining the offer premium in mergers and acquisitions. Unlike other jurisdictions, Indian takeover regulation mandates a minimum offer price that includes targets’ peak market prices, i.e. 26-week (or 2-week), and 60-day high price. This allows to test the salience of the popular 52-week anchoring effect while controlling for regulatory induced anchors in India. Using 169 tender offer deals, our results provide support for persistence in anchoring to 52-week price over and above regulation induced anchors. Regulatory interventions in 2011, to accommodate a recent market price, does not change the anchoring effect. The inference is that acquirers are willing to pay more (higher premium) while anchoring to the 52-week high price, even when the regulator is mandating a lower reference price of 26-weeks/60-days market price. We also find saliency of most regulatory prices as anchors themselves especially during their periods of regulation.

Item Type:	TAPMI Working Papers
Uncontrolled Keywords:	52-week high price; Offer price; Reference Point; Tender offer;Regulation
Subjects:	Finance Finance > Mergers And Acquisitions/Takeovers
Divisions:	Finance and Strategy
Depositing User:	Ms. Vanitha K
Date Deposited:	27 Sep 2018 04:06
Last Modified:	17 Oct 2018 10:13
URI:	http://tapmi.informaticsglobal.com/id/eprint/155

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