Anticipation, Acquisitions and Bidder Returns: Industry Shocks and the Transfer of Information Across Rivals
Moon H. Song
San Diego State University - Finance Department
Ralph A. Walkling
Drexel University - Lebow College of Business
January 1, 2011
The Review of Financial Studies, Forthcoming
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, G14Accepted Paper Series
Date posted: April 25, 2011 ; Last revised: May 24, 2011
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