Performance of target after rejecting an acquisition offer

The role of the management in the performance of completed M&A deal has been studied under different theoretical frameworks. Questions regarding the target management being overconfident or suffering from certain psychological biases or having a conflict of interest has been asked in this context. The same question could be asked about the management of the target in the M&A deals. This paper analyses such question by focusing on the targets that actively rejects an offer. The decision to reject an offer shows very strong signal about the target management belief in their company valuation since this means foregoing a usually significant premium in the offer. The central question is for these cases, whether a higher foregone premium would predict better performance afterward. The preliminary results show that a 1 percentage point increase in the premium rejected will lead to a 1.7 percentage point increase in the premium of the subsequently completed deal if there is one and also a .13 percentage point increase in the likelihood that the target will enter into another subsequent deal. These results might imply the idea that the target managers have a rational evaluation of their firm and was acting on behalf of their shareholders when they reject the original offer