Stock Returns in Mergers and Acquisitions

Dirk Hackbarth and Erwan Morellec
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Erwan Morellec: University of Lausanne - Institute of Banking and Finance (IBF)

No 06-01, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper develops a real options framework to analyze the behavior of stock returns in mergers and acquisitions. In this framework, the timing and terms of takeovers are endogenous and result from value-maximizing decisions. The implications of the model for abnormal announcement returns are consistent with the available empirical evidence. In addition, the model generates new predictions regarding the dynamics of firm-level betas for the time period surrounding control transactions. Using a sample of 1090 takeovers of publicly traded US firms between 1985 and 2002, we present new evidence on the dynamics of firm-level betas, which is strongly supportive of the model's predictions.

Keywords: takeovers; real options; stock returns; firm-level betas (search for similar items in EconPapers)
JEL-codes: G13 G14 G31 G34 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-com and nep-rmg
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Citations: View citations in EconPapers (2)

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Journal Article: Stock Returns in Mergers and Acquisitions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0601

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