Winner’s curse in mergers & acquisitions with common auditors

Abstract

The academic origins of Winner’s curse lie in a paper by Capen, Clapp and Campbell (Capen, E.C., Clapp, R.V., and Campbell, W.M., “Competitive Bidding in High Risk Situations”, Journal of Petroleum Technology, June 1971, Pg. 641-653) who state the following: “In competitive bidding, the winner tends to be the player who most overestimates true tract value…Unexpectedly low rates of return… follow the industry into competitive lease sale environments year after year. This must mean that by and large industry is paying more for the property than it ultimately is worth. But each competitor thinks he is playing a reasonable strategy.”