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Stock mergers and acquirers’ subsequent stock price crash risk

Surendranath Jory (), Thanh Ngo () and Jurica Susnjara ()
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Surendranath Jory: University of Southampton
Thanh Ngo: East Carolina University
Jurica Susnjara: Texas State University

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 1, No 12, 359-387

Abstract: Abstract We examine the changes in acquirers’ stock price crash risk following mergers and acquisitions (M&As). We employ the three measures of crash risk most commonly used in the literature: the negative conditional skewness of acquirer-specific stock returns, a down-to-up volatility measure, and the excess of extreme negative stock returns over extreme positive returns. We find that stock acquirers experience significantly higher stock price crash risk as compared to cash acquirers. The change in risk is positively correlated with the percent of stock used as a payment method. The findings are confined to acquirers with overvalued stock, lower profitability and more financial constraints, as well as to acquisitions of public targets. We confirm that stock market crises do not drive our findings. Furthermore, our results are robust to endogeneity concerns, controlling for non-acquirers and post-merger acquirer changes.

Keywords: Mergers and acquisitions; Crash risk; Stock price crash risk (search for similar items in EconPapers)
JEL-codes: G14 G34 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11156-019-00792-w

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