A bold move or biting off more than they can chew: examining the performance of small acquirers

Nancy L. Harp (), Kevin H. Kim () and Derek K. Oler ()
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Nancy L. Harp: Clemson University
Kevin H. Kim: University of Memphis
Derek K. Oler: Texas Tech University

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 2, No 1, 393-422

Abstract: Abstract Small acquirers enjoy announcement period returns that are significantly higher than announcement returns for larger acquirers, but small acquirers significantly underperform after the acquisition is consummated. We investigate why the market appears to “get it wrong” at the announcement of an acquisition by a small firm. We provide evidence consistent with an initial optimistic overreaction, followed by a correction as updated information is revealed. Overreaction is clustered in small acquirers offering stock and acquiring relatively larger targets. Low post-acquisition returns and poor fundamental performance are clustered in small acquirers offering stock and diversifying.

Keywords: Acquisitions; Post-acquisition returns; Small acquirers; Trading volume; Fundamental performance (search for similar items in EconPapers)
JEL-codes: G12 G14 G34 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-020-00893-x

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