Do Stock Mergers Create Value for Acquirers?

Savor, Pavel G.; Lu, Qi

doi:10.1111/j.1540-6261.2009.01459.x

Cited by 316 publications

(95 citation statements)

References 110 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Indeed, evidence in support of this implication is provided by Bouwman, Fuller, and Nain (2009), Savor and Lu (2009), Lau and Proimos (2010), and Lin, Chou, and Cheng (2011), and this is also consistent with the visual pattern in Figure 1 of this paper. Thus, we also replicate our tests within the subsamples of deals paid for with cash only and those paid for with stocks only.…”

Section: Resultssupporting

confidence: 89%

See 1 more Smart Citation

Post-Merger Returns in Frontier Markets, or How We Learned to Stop Worrying and Love the Acquirers

Zaremba

Szyszka

Płotnicki

et al. 2018

Journal of Business Economics and Management

View full text Add to dashboard Cite

Abstract. This study presents the results from a comprehensive out-of-sample test of long-run returns following mergers and acquisitions (M&As). Using a unique sample from 23 frontier markets of almost 800 transactions conducted during the years 1992 to 2016, we implement both crosssectional tests and time-series examinations based on a calendar-time portfolio approach. Contrary to evidence from developed markets, the M&As in these frontier markets do not lead to abnormal underperformance of acquirers, regardless of whether they paid for the acquisition with cash or stock. The results are robust to many considerations, including subsample and subperiod analysis, alternative formation periods, different portfolio construction approaches.

show abstract

Section: Resultssupporting

confidence: 89%

“…The approach was implemented for post-merger performance by Savor and Lu (2009) and Bouwman et al (2009), inter alia. For a few reasons, in studies of long-run events, the calendar-time portfolio approach has more recently been preferred to the buy-and-hold return approach (BHAR) that was previously popular.…”

Section: Methodsmentioning

confidence: 99%

Post-Merger Returns in Frontier Markets, or How We Learned to Stop Worrying and Love the Acquirers

Zaremba

Szyszka

Płotnicki

et al. 2018

Journal of Business Economics and Management

View full text Add to dashboard Cite

show abstract

“…. A recent studySavor and Lu (2009) proposes a 31.2% abnormal return for successful stock acquirers compared to a benchmark portfolio of unsuccessful acquirers. Their results are consistent with the hypothesis that stock-financed acquirers create value for their long-term…”

mentioning

confidence: 99%

Mergers and acquisitions: a review (part 2)

Yaghoubi

Locke

et al. 2016

SEF

View full text Add to dashboard Cite

Purpose This paper aims to review the relevant literature on mergers and acquisitions in an attempt to provide a comprehensive account of what we know about mergers and which parts of the puzzle are still incomplete. Design/methodology/approach This literature review consists of three key sections. The first part of this paper summarises the literature on the cyclical nature of mergers referred to in the literature as merger waves. The second section reviews the causes and consequences of takeovers; it first reviews the causes, or drivers, of acquisitions, while focusing on the fact that acquisitions happen in waves and then reviews the consequences of takeovers, with a predominant focus on the impacts of mergers on the economic performance of acquirers. The third part of the review summarises the theories, as well as previous empirical studies, on determinants of announcement returns and post-acquisition performance of combined firms. Findings Merger activity demonstrates a wavy pattern, i.e. mergers are clustered in industries through time. The causes suggested for this fluctuating pattern include industry- and economy-level shocks, mis-valuation and managerial herding. Market reaction to announcement of acquisitions is, on average, slightly negative for acquirer stocks and significantly positive for target stocks. The combined abnormal return is positive. These findings have been consistent over several decades of investigation. Prior research also identifies a number of factors that are related to performance of acquisitions. These factors are categorised and reviewed in five different groups: acquirer characteristics, target characteristics, bid characteristics, industry characteristics and macro-environment characteristics. Originality/value This review illustrates a number of issues. Prior research is heavily biased towards gains to acquirers and factors that affect these gains. It is also biased towards finding sources of value creation through mergers despite the fact that several theories suggest that mergers can be value-destroying. In fact, value destruction is often attributed to managers’ self-interest (agency problem) and mistakes (hubris). However, the mechanisms through which mergers destroy value are rarely addressed. Aside from that, the possibility of simultaneous creation and destruction of value in acquisitions is not often considered. Finally, after several decades of investigation, a key question is not completely answered yet: “What are the sources of value in mergers and acquisitions?”

show abstract

“…Martin (1996) shows that acquirers with greater growth opportunities are more likely to use stocks as the method of payment because the equity financing gives those acquirers increased flexibility to take advantage of their investment opportunities. Savor and Lu (2009) find that successful bidders in stock acquisitions fare better than failed bidders over the long run, suggesting that successful bidders create value for their long-term shareholders by exploiting their overvalued stocks.…”

Section: Notesmentioning

confidence: 92%

Stock acquisitions, investor recognition, and announcement returns

Lei

2016

Managerial Finance

View full text Add to dashboard Cite

Purpose -The purpose of this paper is to test the hypothesis that relative to a cash acquisition, a stock acquisition would increase the bidder's investor base and lower Merton's (1987) shadow cost, which in turn contributes positively to the bidder announcement return. Design/methodology/approach -Using the number of registered shareholders and measures of institutional ownership as the proxies for investor base and investor recognition, this paper compares their changes and the changes in shadow cost between bidders using different methods of payment. The authors examine the relation between the shadow cost reduction and bidder announcement return in a multivariate framework.Findings -This paper finds that given the target type, bidders using stocks experience significantly larger increases in their investor bases and investor recognition than bidders using cash. Additionally, only bidders using stocks experience significant decreases in their shadow costs. In a multivariate framework, the change in the shadow cost has a negative and significant effect on the bidder announcement return in the sample of stock acquisitions and the subsample of bidders using stocks to acquire private targets. These findings support the authors' hypothesis and suggest that the less established bidders acquiring private targets in particular benefit from the shadow cost reduction. Originality/value -This paper provides the direct evidence that investor recognition matters in mergers and acquisitions. The findings also provide a complementary explanation for the documented positive bidder returns when bidders use stocks to acquire private targets.

show abstract

Do Stock Mergers Create Value for Acquirers?

Cited by 316 publications

References 110 publications

Post-Merger Returns in Frontier Markets, or How We Learned to Stop Worrying and Love the Acquirers

Post-Merger Returns in Frontier Markets, or How We Learned to Stop Worrying and Love the Acquirers

Mergers and acquisitions: a review (part 2)

Stock acquisitions, investor recognition, and announcement returns

Contact Info

Product

Resources

About