Rethinking Measures of Mergers & Acquisitions Deal Premiums

Many academic studies use fixed pre-announcement event days (such as -20, -42, or -63) to measure takeover premiums. In this paper, we show that the use of traditional fixed windows generates premiums that are underestimated by as much as eight percentage points. This downward bias is especially severe for transactions with long processes (such as target-initiated deals). We take account of this bias by hand-collecting deal initiation dates and show that using these dates results in measured premiums that give contradictory conclusions to those found in existing literature. We also offer guidance for measuring premiums if hand-collecting data is impractical.