Return to Invested Capital and the Performance of Mergers and Acquisitions

Jun “QJ” Qian () and Julie Lei Zhu ()
Additional contact information
Jun “QJ” Qian: Fanhai International School of Finance, Fudan University, 200433 Shanghai, China
Julie Lei Zhu: Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, 200030 Shanghai, China

Management Science, 2018, vol. 64, issue 10, 4818-4834

Abstract: We evaluate the efficiency of capital deployment for acquiring firms before mergers and acquisitions (M&As), defined as the return on invested capital net of the cost of capital, and link this measure to firms’ postacquisition performance. Acquirers with higher preacquisition net returns on investment have superior long-run operating and stock performance than do acquirers with lower returns. Acquirers with low net returns on investment also underperform matching nonacquirers. The relationship between preacquisition investment return and postacquisition performance is weakened when chief executive officer turnover occurs after deal completion. These results imply that managerial ability in deploying capital and creating value for shareholders persists through M&As.

Keywords: merger and acquisition; invested capital; stock return; return on assets; CEO turnover (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.287/mnsc.2017.2766 (application/pdf)

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:inm:ormnsc:v:64:y:2018:i:10:p:4818-4834

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().