An empirical Analysis of Exchange Ratio Determination Models for Merger

摘要

This paper examines the empirical validity of two exchange ratio determination models for merger, the Larson & Gonedes (L&G) PE model and the Yagil dividend growth model. these two models formulate exchange ratios as a function of a differnet factor: expected post-merger price-earnings multiple and expected post-merger dividend growth, respectively. this pper finds empircial support for the L&G model but finds weak support for the yagil mdoel. In aprticular, the reuslts show that the number of stock mergers that results in wealth gains for both acquiring and target firms and hence conforms to the rationality assumption of each model is substantially greater for the L&G model than for the Yagil model. Regression analysis provides confirmatory evidence on the empirical validity of the L&G model that PE-related variables play more significant role in explaining the actual exchange ratios than growth-rlated variables.