The Impact of the Anchoring Effect on Acquirer Returns in Mergers and Acquisitions

Abstract

This article examines the impact of investor cognitive bias (the anchoring effect) on the stock returns of domestic acquiring companies in mergers and acquisitions (M&A) using correlation-regression analysis. The aim of the paper is to develop and analyze regression models that describe the dependence of stock price changes on investor biases, in order to identify patterns and assess the efficiency of the Russian stock market, as well as to formulate recommendations for recognizing and accounting for the subjective perceptions of M&A deals by market participants. The authors introduce the reader to the core research methodology, the nature of the collected data, expected stock return models, and various combinations for modeling abnormal returns reflecting the anchoring effect. The study confirms the influence of the anchoring effect on the Russian stock market, provides formulas and coefficients for the return regression equations, and establishes the statistical significance of both the regression equations and their factor variables. This approach can be applied to assess the efficiency of national capital markets, including comparing their speed of reaction to M&A events and the corresponding level of uncertainty, as well as mitigating the asset overvaluation effect when purchasing securities. The project will benefit of a wide range of investors seeking to adapt their decision-making process to behavioral factors and incorporate them into their own investment strategies.