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Anticipation, Acquisitions and Bidder Returns: Industry Shocks and the Transfer of Information Across RivalsJie CaiDrexel University Moon H. SongSan Diego State University - Finance Department Ralph A. WalklingDrexel University - Lebow College of Business January 1, 2011 The Review of Financial Studies, Forthcoming Abstract: We document market anticipation of merger bids and that less anticipated bids earn significantly higher announcement returns. Subsequent bidders experience significant and positive returns surrounding initial industry bid announcements. These results suggest that announcement period returns underestimate the wealth effects of bidding. After recognizing anticipation, bidding activity is, on average, a significant wealth-creating event. Moreover, bidders pursuing public targets increase shareholder wealth and bidders in stock swaps do not lose. These results are in contrast to conventional wisdom. Our results shed light on the correct magnitude of acquisition returns and on information transfer throughout an industry surrounding an economic shock.
Number of Pages in PDF File: 58 Keywords: Mergers and Acquisitions, Anticipation, Information Transfer, Industry Shock, Wealth Effects JEL Classification: G34, G14 Accepted Paper SeriesDate posted: April 25, 2011 ; Last revised: May 24, 2011Suggested CitationContact Information
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