Investigating the valuation effects of reverse takeovers: evidence from Europe

Apostolos Dasilas (), Chris Grose () and Michael A. Talias ()
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Apostolos Dasilas: University of Macedonia
Chris Grose: International Hellenic University
Michael A. Talias: Open University of Cyprus

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 4, No 4, 973-1004

Abstract: Abstract This study examines a European sample of 222 private firms that opted for going public through a reverse takeover transaction during the period 1992–2011. In particular, our study investigates whether reverse takeovers announcements are value-increasing transactions, especially in countries that follow strong governance structures. Moreover, the post-reverse takeover stock price and operating performance is also at the epicenter of the current study. Employing the classical event study methodology, we document significant wealth gains for the shareholders of public firms involved in reverse takeovers. The market reaction is stronger when stricter corporate governance structures prevail in the countries where public firms trade. However, the short-term gains seem to revert to substantial losses over the long-term lending support to the overreaction phenomenon. We further detect negligible improvement in the post-reverse takeover financial performance of the new entity raising further concerns over the efficacy of such transactions.

Keywords: Reverse takeovers; Operating performance; Market reaction; Going public (search for similar items in EconPapers)
JEL-codes: G30 G33 G34 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-016-0614-9

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