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Winning by Losing: Evidence on the Long-Run Effects of MergersUlrike MalmendierUniversity 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 MorettiUniversity of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA) Florian S. PetersUniversity 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 seriesDate posted: March 19, 2011 ; Last revised: April 24, 2012Suggested CitationContact Information
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