We study shareholder returns for firms that acquired five or more public, private, and0or subsidiary targets within a short time period. Since the same bidder chooses different types of targets and methods of payment, any variation in returns must be due to the characteristics of the target and the bid. Results indicate bidder shareholders gain when buying a private firm or subsidiary but lose when purchasing a public firm. Further, the return is greater the larger the target and if the bidder offers stock. These results are consistent with a liquidity discount, and tax and control effects in this market.Takeovers are one of the most important events in corporate finance, both for a firm and the economy. Extensive research has shown that shareholders in target firms gain significantly and that wealth is created at the announcement of takeovers~i.e., combined bidder and target returns are positive!. However, we know much less about the effects of takeovers on the shareholders of acquiring firms. Evidence suggests that these shareholders earn, on average, a zero abnormal return at the acquisition's announcement, though there is tremendous variation in these returns. Researchers have been unable to successfully explain much of this variation, partially because the announcement of a takeover reveals information about numerous things. For example, Grinblatt and Titman~2002, p. 708! state that the stock return at the time of the bid cannot be completely attributed to the expected effect of the acquisition on profitability, arguing that, "the stock returns of the bidder at the time of the announcement of the bid may tell us more about how the market is reassessing the bidder's business than it does about the

Existing research shows that significantly more acquisitions occur when stock markets are booming than when markets are depressed. Rhodes-Kropf and Viswanathan (2004) hypothesize that firm-specific and market-wide (mis-)valuations lead to an excess of mergers, and these will be value-destroying. This paper investigates whether acquisitions occurring during booming markets are fundamentally different from those occurring during depressed markets. We find that acquirers buying during high-valuation markets have significantly higher announcement returns but lower long-run abnormal stock and operating performance than those buying during low-valuation markets. We investigate possible explanations for the long-run underperformance and conclude it is consistent with managerial herding. JEL Classification: G34

Abstract:Existing literature documents that large acquisitions destroy more value for acquiring shareholders than small acquisitions and attributes this to overpayment driven by managerial incentives and/or overconfidence. Nevertheless, the less intense competition, higher value at stake, lower managerial ownership and/or sizeable complexity of post-merger integration associated with large targets can result in lower acquisition premia. We examine these contradictory predictions and document a robust negative relation between target size and the premium paid in acquisitions. We also find that, despite the payment of lower premia, acquisitions of large targets destroy more value for acquirers and result in sharper increases in their return uncertainty around the deal announcement, implying that investors perceive these deals as more uncertain projects. Acquirers of large firms continue to underperform small target acquirers in the long-run in terms of both stock market and operating performance which indicates that they fail to deliver the assumed synergies. Our evidence suggests that large deals tend to be too big to succeed, irrespective of the premium paid.

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Abstract:Existing literature documents that large acquisitions destroy more value for acquiring shareholders than small acquisitions and attributes this to overpayment driven by managerial incentives and/or overconfidence. Nevertheless, the less intense competition, higher value at stake, lower managerial ownership and/or sizeable complexity of post-merger integration associated with large targets can result in lower acquisition premia. We examine these contradictory predictions and document a robust negative relation between target size and the premium paid in acquisitions. We also find that, despite the payment of lower premia, acquisitions of large targets destroy more value for acquirers and result in sharper increases in their return uncertainty around the deal announcement, implying that investors perceive these deals as more uncertain projects. Acquirers of large firms continue to underperform small target acquirers in the long-run in terms of both stock market and operating performance which indicates that they fail to deliver the assumed synergies. Our evidence suggests that large deals tend to be too big to succeed, irrespective of the premium paid.