Review of Quantitative Finance and Accounting

, Volume 34, Issue 3, pp 327–349 | Cite as

Hot and cold merger markets

  • N. K. Chidambaran
  • Kose John
  • Zhaoyun Shangguan
  • Gopala Vasudevan
Original Research


We study mergers and acquisition during the period from 1988 to 2005 and examine the impact of merger market intensity, i.e., merger waves, on the means of payment and the returns to target and acquirer shareholders. We use two proxies to measure the intensity of the merger market—the number of mergers in the trailing 12-month period prior to a merger and the total dollar volume of mergers in the trailing 12-month period prior to a merger—and use these measures to define hot and cold merger markets. We find that stock financing is more common after a stock price run-up for the acquiring firm and in hot merger markets. We also find that the acquisition premium is larger in hot merger markets. Returns to acquiring company shareholders are lower for stock financed mergers and are lower when merger markets are intense. Our results are consistent with the predictions of the behavioral theory for merger waves.


Hot and cold merger markets Merger quality Acquisition premiums Announcement-period returns Behavioral theory of mergers 

JEL Classification

G34 G30 



We would like to thank Nagpurnanand R. Prabhala and an anonymous referee for useful comments on the paper.


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • N. K. Chidambaran
    • 1
  • Kose John
    • 2
  • Zhaoyun Shangguan
    • 3
  • Gopala Vasudevan
    • 4
  1. 1.Department of Finance & Business EconomicsFordham UniversityNew YorkUSA
  2. 2.Department of FinanceNew York UniversityNew YorkUSA
  3. 3.Department of Accounting and Finance, School of BusinessRobert Morris UniversityMoon TownshipUSA
  4. 4.Department of Accounting and Finance, Charlton College of BusinessUniversity of MassachusettsDartmouthUSA

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