Abstract

http://ssrn.com/abstract=1787409
 
 

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Winning by Losing: Evidence on the Long-Run Effects of Mergers


Ulrike Malmendier


University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Enrico Moretti


University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Florian S. Peters


University of Amsterdam

April 15, 2012


Abstract:     
Do acquirors profit from acquisitions, or do acquiring CEOs overbid and destroy shareholder value? We present a novel approach to estimating the long-run abnormal returns to mergers exploiting detailed data on merger contests. In the sample of close bidding contests, we use the loser’s post-merger performance to construct the counterfactual performance of the winner had he not won the contest. We find that bidder returns are closely aligned in the years before the contest, but diverge afterwards: Winners underperform losers by 50 percent over the following three years. Existing methodologies, including announcement effects, fail to capture the acquirors’ underperformance.

Number of Pages in PDF File: 58

Keywords: Mergers, Acquisitions, Misvaluation, Matching, Counterfactual

JEL Classification: G34, G14, D03

working papers series


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Date posted: March 19, 2011 ; Last revised: April 24, 2012

Suggested Citation

Malmendier, Ulrike and Moretti, Enrico and Peters, Florian S., Winning by Losing: Evidence on the Long-Run Effects of Mergers (April 15, 2012). Available at SSRN: http://ssrn.com/abstract=1787409 or http://dx.doi.org/10.2139/ssrn.1787409

Contact Information

Ulrike Malmendier (Contact Author)
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
(510) 642-8724 (Phone)
(510) 642-6615 (Fax)
HOME PAGE: http://www.econ.berkeley.edu/~ulrike/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=918
Enrico Moretti
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
HOME PAGE: http://emlab.berkeley.edu/~moretti/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Florian S. Peters
University of Amsterdam ( email )
Amsterdam, 1018 WB
Netherlands
+31 6 30890044 (Phone)
Feedback to SSRN


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