Business, Management and Accounting
6 years ago

Bid hostility and acquisition premiums drive arbitrage spread in S&P 500 firms.

Theoretical Economics Letters
An Analysis of the Determinants of Arbitrage Spread
Étienne Redor

Paper Summary

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The study looked at what affects the difference between the buying and selling prices of S&P 500 companies from 2004 to 2014. They found that when companies are not friendly towards being bought, when the target company is much smaller than the buyer, and when the buyer pays a lot more than the target is worth, the price difference is bigger. On the other hand, when the deal involves more cash and the target company has penalties for backing out, the price difference is smaller.