Does market misvaluation drive post-acquisition underperformance in stock deals?

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22 Citations (Scopus)


There is limited direct evidence on the impact of market misvaluation on acquirer long run performance. In this paper, we hypothesize that stock prices of stock-financed acquirers would move toward their fundamental value in the long run, thus correcting the initial overvaluation. Empirical results show that more overvalued acquirers are associated with poorer post-acquisition abnormal returns. We eliminate the concern that our findings are due to either overpayment or overvaluation-driven bad acquisitions. Our results are robust to controlling for market-wide valuation, alternative methods and assumptions used to calculate abnormal returns and fundamental value, and other factors affecting acquirer returns.

Original languageEnglish
Pages (from-to)690-706
Number of pages17
JournalInternational Review of Economics and Finance
Issue number4
Publication statusPublished - 2011 Oct

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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