The market’s (ir)rationality

A great number of studies documented bidder merger losses around the merger announcement date. The majority of the determinants documented are considered rational, however, a great line of literature has increasingly focused on the effect of past stock prices on decision makers e.g. 52-week high. This implies that there is a notion of irrationality inherent to decision makers when facing uncertainty. This study aims to find, through the anchoring-and-adjustment model and from a (stock) market perspective a new determinant for these negative bidder merger gains. In addition, this study includes the bidder’s investment bank reputation as a (statistical) moderator in the main relationship because they act as brokers decreasing information asymmetry and uncertainty. This quantitative study has collected a sample of 947 M&A deals during 1 January 1991 until 31 December 2007. Through ordinary least square (OLS) regressions two hypotheses have been tested. More specifically, what is the effect of the 52-week high on the bidder merger gains, and how this relationship is moderated by the bidder investment bank reputation? Surprisingly, the results empirically document a positive effect of the anchor (52-week high) in the bidder merger gains and that low-tier investment banks might provide higher bidder merger gains than their top-tier counterparties. The results of this study contradict a previous research and suggests that for investigating the anchoring effect more focus should be allocated into the run-up period plus the timing after the announcement altogether. In addition, the relative determinants should be considered. [PAGE LEFT INTENTIONALLY BLANK] Acknowledgements This research project has been completed as part of the fulfilment of the MSc in Management of Technology at Delft University of Technology. This is my last step before entering the real world and I would like to dedicate this space to thank the people that contributed during this period of time. Firstly, I would like to thank my parents. There are no words to describe how thankful and proud I am for having you. You are an example of hard-work, dedication and resilience, but at the same time humility and passion. Thank you for all your support, love and example, but most importantly for giving me these numerous opportunities to create a better future for myself. I would like to thank Dr. Zenlin Roosenboom-Kwee and Dr. Maarten Kroesen. Zenlin strictly guided me throughout this project, but at the same time she gave me the freedom to choose my topics and methods self-sufficiently. Maarten, was always available and he constantly challenged the ideas presented in this research, especially regarding the statistical analysis and methodology, which strengthen the results. Both of them always found the time to support me and give me critical feedback. I would like to thank my chair Prof. Cees van Beers for your comments and for being part of my board. I would like to thank the family Laddrak, Michael and Mirian, who always managed to find time for me no matter how busy you were, to help me and support me in every occasion. I am very thankful for having people like you around me guiding and supporting me, but specially showing me that no matter how hard things or situations get, hard-work always pays off. These years in the Netherlands would not have been so great without having you by my side. I would like to thank my bosses at Tesla for their understanding during the times I was not able to show-up at work due to this project. These past months have been rough and having had great guidance and support from my supervisors and bosses has made this journey very pleasant. I hope that throughout this thesis, all the excitement and hard-work that was placed in the process can be conveyed. Amsterdam, Sunday, April 30, 2017