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

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)

Abstract

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
Volume20
Issue number4
DOIs
Publication statusPublished - 2011 Oct

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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