Security analyst target prices as reference point and takeover completion

Based on prospect theory, we posit that security analysts' target prices function as a reference point for takeover bids and affect deal completion. Using a sample of US takeovers from 1999 to 2014, we find a negative relation between target prices for a takeover target and the chances for successful deal completion. High degrees of target price dispersion indicate high reference points for some investors. Accordingly, we find low completion rates when target price dispersion is high. Our results hold for both ultimate deal completion and implied completion probability measured shortly after bids were announced as an alternative measure for completion likelihood.