Long-run performance of mergers and acquisition of privately held targets: evidence in the USA

Shao-Chi Chang and Ming-Tse Tsai

Applied Economics Letters, 2013, vol. 20, issue 6, 520-524

Abstract: In this study, we examine the long-run performance of firms acquiring privately held targets. Past studies have documented a positive market reaction to the announcement of Mergers and Acquisitions (M&A) of privately held targets. The M&As of privately held targets involve uncertain information, which investors are more likely to misestimate. In this study, we tested the long-run performances of acquiring firms and found negative results. We further found that the stock performance of acquiring firms was superior prior to the M&A. Our results suggest that investors may over-extrapolate prior good performance and that the long-run reversed return corrects the overestimation in response to announcements of M&A.

Date: 2013
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DOI: 10.1080/13504851.2012.718060

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