Are Stock-for-Stock Acquirers of Unlisted Targets Really Less Overvalued?

Abstract:     
Extant studies often assume that targets’ private ownership mitigates acquirers’ incentives and opportunities to finance acquisitions with inflated stocks. This view stems from the observation that, although the average stock-for-stock acquirer’s merger announcement abnormal return is negative when the target is listed, it is positive when the target is unlisted. Accordingly, extant studies suggest that announcements of stock-for-stock acquisitions of unlisted targets generally convey favorable private information about the acquirers. However, an analysis of stock-for-stock acquirers’ long-term stock performance, abnormal accruals, net operating assets, and insider trading suggests the opposite. Not only are acquirers of unlisted targets generally overvalued, but they also tend to be even more overvalued than acquirers of listed targets.

Number of Pages in PDF File: 50

Keywords: M&A, Acquirer performance, Overvaluation, Target listing status

JEL Classification: G14, G34

working papers series