Publication Type
Working Paper
Version
publishedVersion
Publication Date
5-2018
Abstract
There is a discrepancy between CAPM-implied and realized returns. Using the CAPM in capital budgeting -- as recommended in finance textbooks -- should thus have valuation effects. For instance, low beta projects should be valued more by CAPM-using managers than by the market. This paper empirically tests this hypothesis using publicly announced M&A decisions and shows that takeovers of lower beta targets are accompanied by lower cumulative abnormal returns for the bidders. Specifically, our estimates imply an average net loss to bidders corresponding to 12% of the average deal value and exceeding USD 10 billion per year in aggregate.
Keywords
Capital Budgeting, Valuation, Mergers and Acquisitions, Capital Asset Pricing Model
Discipline
Corporate Finance | Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
68
Identifier
10.2139/ssrn.3050928
Citation
DESSAINT, Olivier; OLIVIER, Jacques; OTTO, Clemens A.; and THESMAR, David.
CAPM-based company (mis)valuations. (2018). 1-68.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5925
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.3050928
Comments
Published in Review of Financial Studies, 2020 May, Advance online https://doi.org/10.1093/rfs/hhaa049