TY - JOUR
T1 - Does market misvaluation drive post-acquisition underperformance in stock deals?
AU - Lin, Hsuan Chu
AU - Chou, Ting Kai
AU - Cheng, Jia Chi
N1 - Funding Information:
We would like to thank Shantanu Dutta, Albert Tsang, Yu-Hong Liu, an anonymous referee and participants at the 2008 Financial Management Association meeting, the 2008 American Accounting Association annual meeting, and the 2009 Accounting Theory and Practice Conference in Taiwan for their insightful comments. Hsuan-Chu Lin also gratefully acknowledges the financial support from the National Science Council (NSC 97-2410-H-006-012 ). All errors remain ours.
PY - 2011/10
Y1 - 2011/10
N2 - 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.
AB - 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.
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U2 - 10.1016/j.iref.2010.12.005
DO - 10.1016/j.iref.2010.12.005
M3 - Article
AN - SCOPUS:79957555521
SN - 1059-0560
VL - 20
SP - 690
EP - 706
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
IS - 4
ER -