This paper attempts to investigate whether stock market misvaluation has been a driver force in merger and acquisition activities during 2000-2007 in Australia. Our findings indicate that, more overvalued firms use stocks to buy less overvalued firms, overvalued firms pay cash to buy undervalued firms, and higher bidder overvaluation relative to target overvaluation decreases the combativeness of the deals. Our findings provide a behavioral explanation of the Australian takeover activities that has been traditionally viewed from the neoclassical perspectives premised upon the efficient market hypothesis.
- Misvaluation hypothesis
- Australian merger and acquisition
- market efficiency