Recently, the large T panel literature has emphasized unobserved, time-varying heterogeneity that may stem from omitted common variables or global shocks that affect each individual unit differently. These latent common factors induce cross-section dependence and may lead to inconsistent...

We provide evidence that ex ante misvaluation matters for merger activities in the UK 1986-2002 using a sample of 302 bidders and targets. Sector or long-run misvaluation causes merger firms to be more overvalued than nonmerger firms. Acquirers are overvalued absolutely and relative to targets...