Does acquirer cash level predict post-acquisition returns?

Derek K. Oler ()
Additional contact information
Derek K. Oler: Indiana University

Review of Accounting Studies, 2008, vol. 13, issue 4, No 3, 479-511

Abstract: Abstract This paper investigates whether an acquirer’s pre-announcement cash level can predict post-acquisition returns. Harford (1999, Journal of Finance, 54, 1969–1997) shows that some cash-rich acquirers have lower announcement period returns than other acquirers, suggesting the market partially anticipates poor future performance. This paper shows that the acquirer’s cash level is also strongly and negatively predictive of post-acquisition returns, indicating that the announcement response is incomplete. Post-acquisition return on net operating assets (RNOA) is significantly decreasing in acquirer cash, suggesting that the market responds to subsequent poor operating performance as it is reported. Overall, these results are consistent with the market’s inattention to a less prominent accounting signal (acquirer cash) but attentiveness to a more prominent accounting signal (RNOA), as proposed by Hirshleifer and Teoh (2003, Journal of Accounting Economics, 36, 337–386).

Keywords: Acquisitions; Cash accumulation; Post-acquisition returns; Market efficiency; G34; G14; M41 (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11142-007-9052-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:reaccs:v:13:y:2008:i:4:d:10.1007_s11142-007-9052-1

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-007-9052-1

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().