Are Acquisitions Unique? Evidence of the Pedestrian Nature of Post-Merger Returns
University of Memphis
Michael J. Schill
University of Virginia Darden School of Business
December 12, 2012
This paper compares firm stock returns associated with acquired and organic (non-acquired) asset growth. Using a large sample of U.S. firms, we show that the poor post-deal returns that have been associated with acquisitions are not unique but similar to the returns of other firms that grow organically at the same rate. This observation calls into question a large existing literature by asserting that the distinguishing characteristic associated with acquiring firms is simply their tendency to expand their balance sheet. Tests using analyst forecast errors and operating returns provide similar patterns. By proposing that investors systematically and symmetrically overcapitalize acquired and organic growth, the findings reframe our understanding of both the merger and asset growth literature.
Number of Pages in PDF File: 41
Keywords: takeover returns, asset growth, long-run returns
JEL Classification: G14, G34
Date posted: March 15, 2010 ; Last revised: December 14, 2012
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