Do Acquirer Announcement Returns Reflect Value Creation?

Itzhak Ben-David, Utpal Bhattarcharya and Stacey Jacobsen
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Utpal Bhattarcharya: Hong Kong U of Science and Technology
Stacey Jacobsen: Southern Methodist U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Stock returns around acquisition announcements are widely viewed as being reflective of the net present value created by these transactions. As such, announcement returns should correlate with acquisition outcomes. Using a new measure of realized transaction-level acquisition failure, as well as acquirer firm-level performance, we show that while these outcomes can be predicted based on observable deal and firm characteristics, they are largely uncorrelated with announcement returns. Our results cast doubt on the usefulness of announcement returns as a measure of the value created in acquisitions and call for caution in other contexts.

JEL-codes: G02 G14 G32 G34 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2020-18

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