Stock effects of the winner's curse: Evidence from the RTC auctions

Abstract

The recent studies by Balbirer, Jud, and Lindahl (1992) found that in the P&A transactions arranged by the FSLIC (pre-RTC), the shareholders of acquiring firms earned significant positive returns. However, there was little research on the failed thrifts arranged by the RTC, probably because this institution was established 4 years ago. The objectives of this study are to investigate whether the pricing outcomes of the RTC benefit the acquirers by studying the stock price reactions before and after the announcements of the RTC arranged mergers. Some factors that may affect the abnormal returns of the successful bidders and those that may affect the winning bids are also analyzed in this study.