Do the most prominent firms really make the worst deals? How selection issues affect inferences from M&A studies

Josh Austin, Jeremiah Harris () and William O'Brien

Journal of Banking & Finance, 2020, vol. 118, issue C

Abstract: Many studies find a negative relationship between acquirers’ stock returns and their size, past acquisitiveness, and performance. This counter-intuitively suggests that large, well-performing, and acquisitive firms are worse-than-average acquirers. We hypothesize that these findings stem from bias related to an omitted variable: the predictability of acquisitive behavior. We theoretically model the direction of this bias for each variable and test these predictions using Heckman's two-stage procedure with a relevant and plausibly excludable variable related to tax avoidance. By mitigating this bias, our approach generates several new insights about acquisition value that are obscured by OLS regressions of deal announcement returns.

Keywords: Mergers and acquisitions; Selection bias; Shareholder value (search for similar items in EconPapers)
JEL-codes: C52 G14 G34 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426620301540
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301540

DOI: 10.1016/j.jbankfin.2020.105888

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().