Glamour versus value, market timing and firm performance: evidence from mergers and acquisitions

Market valuation and acquiring firm performance in the short and long term: Out-of-sample evidence from Spain

“…In this sense, our evidence is consistent with some behavioural models that predict an underreaction pattern where long-term returns continuations are expected (Kadiyala and Rau, 2004; Croci et al, 2010). However, our findings are not coincident with Petmezas (2009), Porter and Singh (2010), Danbolt et al (2015), Zaremba and Grobelny (2017) and Chuang (2018) who find overreaction, that is, bidder reactions are consistent with the predictions of investor sentiment (optimism) generating short-run significantly large abnormal returns followed by long-term reversals during bullish markets.…”

“…In this sense, our evidence is consistent with some behavioural models that predict an underreaction pattern where long-term returns continuations are expected (Kadiyala and Rau, 2004;Croci et al, 2010). However, our findings are not coincident with Petmezas (2009), Porter and Singh (2010), Danbolt et al (2015), Zaremba and Grobelny (2017) and Chuang (2018) who find Table 3. Acquirer's short-and long-term abnormal performance by listing status of the target firm and market valuation.…”

“…Besides, Jacobs (2015) shows that the performance of most anomalies is strongly influence by market sentiment implying that many of the abnormal returns would be increased in hot market periods. Additionally, Chuang (2018) claims that the market timing can be a determinant to influence the performance of glamour versus value firms in M&As and finds that bidders are more probably to involve in diversifying acquisitions during hot markets. In this context, small (large) bidding firms are more likely to engage in M&As during the hot (cold) market timing.…”

“…Conversely, Zaremba et al (2018) suggest that results are independent from the form of payment. 2 Chuang (2018) suggests that transactions involved in diversifying acquisitions obtain lower post-announcement returns. In contrast, prior evidence shows that bidders in diversification acquisitions are associated with positive abnormal returns.…”

Do more mergers and acquisitions create value for shareholders?

“…Furthermore, market timing is another motive that can result in value decreasing M&As, suggesting that rational acquirers understand misevaluation in inefficient financial markets and therefore time the market to take advantage of it (Chuang 2018;Dong et al 2006).…”