Influence of Anchoring Effect on Acquirer's Return in Mergers and Acquisitions

This article examines the presence of the reference price effect in mergers and acquisitions in Russian market. The reference price effect may distort the investor perception of how the deal affects the company. In this study we use Russian market as a laboratory for the investigation of behavioral effects in a relatively inefficient market with high ownership concentration. The emerging market’s environment helps us to verify the idea that the higher uncertainty increases the investors’ behavioral biases. We find a relationship between the acquirer’s announcement period return and the proximity of its pre-announcement share price to the 52-week high. The 52-week high serves as a salient anchor even though it is economically irrelevant for valuation purposes. This effect appears to be stronger for deals associated with higher levels of uncertainty. The findings confirm the presence of the anchoring bias in evaluating the effect of a merger or acquisition announcement by Russian investors. We demonstrate a significant anchoring effect even for deals with a blocking (>10%) or a controlling stake (>25%) in an emerging market with a highly concentrated ownership.