Disentangling the Link between Stock and Accounting Performance in Acquisitions

Abstract:     
While empirical studies that use event-study methodology find on average that the gains from mergers and acquisitions are positive, those focusing on accounting figures tend to find a significant drop in performance. We argue that each of the four possible combinations between positive or negative abnormal stock returns and accounting performance is due to a distinct acquisition motive. We find strong empirical evidence in support of this claim.

Number of Pages in PDF File: 60

Keywords: Mergers and acquisitions, performance measurement, synergies, preemption, overvaluation, corporate governance, agency problems

JEL Classification: G34, G3, G14

working papers series