Offer Premiums and Stock Price Momentums in Japan: Examining the Estimated Capitalization Values and Pre-announcement High and Low Prices

This study investigates the influences of target firm stock price misvaluation and the two types of stock price momentums using the new concepts of offer premiums, namely, those based on the estimated capitalization values and pre-announcement high and low prices. The main findings are as follows. (1) Acquirers tend to set the offer price based more on the estimated capitalization value than the market capitalization value of the target firm for the normal premium subsample. However, the opposite is true for the high premium subsample, and offer pricing is affected by the estimated capitalization value of the target firm for the premium subsamples but not for the discount subsample. (2) The target firmʼs misvaluation may be associated with the conditions of its pre-announcement high and low prices for the normal premium subsample. Meanwhile, the smaller the undervaluation, the higher the offer price relative to the pre-announcement high prices only for the high premium subsample. (3) The target firm stock price momentum partly affects the offer premiums based on the target firmʼs average stock price and estimated capitalization value, and the upward and downward momentums widely influence the offer premiums based on the target firmʼs pre-announcement high and low stock prices. (4) Lastly, the TOPIX momentum exhibits comparatively weaker, narrower, and less pronounced effects than the target firm stock price momentum. ; departmental bulletin paper