Our results provide strong evidence of the anticipation and transfer of information throughout an industry at the announcement of initial bidding activity. First, the abnormal returns of bidding firms are significantly positively related to the length of time between bid announcements in the industry. Second, at the time of an industry's initial announcement, rivals that will bid in the future experience significant price adjustments in comparison to non-bidding rivals. Third, these price adjustments are significantly and positively related to the abnormal returns earned by the initial industry bidder. Results are robust to variables typically associated with acquiring firm returns. The implication of our research is that typical announcement period returns do not adequately measure returns to bidding. Less anticipated bidding activity is, on average, a wealth-creating event. Moreover, the magnitude of the anticipation effect is large enough to alter some existing paradigms regarding corporate acquisitions. For example, we find that bidders in less anticipated stock acquisitions earn significantly positive abnormal returns and earn insignificant returns in less anticipated acquisitions of public targets. Both of these results are contrary to conventional wisdom. This does not negate the importance of these variables but indicates that the magnitude of the anticipation effect dominates those of payment method or organizational form of the target. Our results are also important in understanding the transfer of information throughout an industry surrounding an economic shock.

We document market anticipation of merger bids and that less anticipated bids earn significantly higher announcement returns. Subsequent bidders experience significant and positive returns surrounding initial industry bid announcements. These results suggest that announcement period returns underestimate the wealth effects of bidding. After recognizing anticipation, bidding activity is, on average, a significant wealth-creating event. Moreover, bidders pursuing public targets increase shareholder wealth and bidders in stock swaps do not lose. These results are in contrast to conventional wisdom. Our results shed light on the correct magnitude of acquisition returns and on information transfer throughout an industry surrounding an economic shock.

This paper examines the relation between managerial ownership and the probability of being a target firm, and the impact of managerial ownership on target shareholder returns. The paper finds that targets have lower managerial ownership than either their industry counterparts or randomly selected nontargets. Managerial ownership is significantly lower in contested compared to uncontested offers, and in unsuccessful compared to successful cases. Managerial ownership is significantly related to abnormal returns in contested cases that are ultimately successful. The results are consistent with a positive impact of managerial ownership where it is used to negotiate, but not ultimately block, an acquisition.