Seeking “strategic alternatives” is a euphemism for a company trying to sell itself, which typically results in an acquisition premium for shareholders, and many announcements of strategic alternatives explicitly state that the goal is maximizing shareholder value. Upon a company’s announcement that it is evaluating strategic alternatives, its stock price on average jumps more than 5 percent. Yet, over the next six months, the price drops 9 percent, more than erasing the initial gain. In a new article, we explain how the market misprices the news so severely.

Questioning the Status Quo

The traditional theory of financial markets is the … Read more