The (Missing) Relation Between Acquisition Announcement Returns and Value Creation

Itzhak Ben-David, Utpal Bhattacharya () and Stacey E. Jacobsen

No 27976, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Cumulative abnormal returns (CAR) computed around acquisition announcements are widely considered to be market-based assessments of expected value creation. We show, however, that announcement returns do not correlate with commonly used and new measures of ex-post outcomes. A simple characteristics model using standard information known at announcement can predict outcomes reasonably well, yet CAR fails even to capture the prediction from this model. Evidence suggests that information about the standalone acquirer dominates CAR, making it virtually impossible to extract deal-related information. We conclude that CAR is an unreliable measure of expected value creation.

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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