The Success of Acquisitions: Evidence from Disvestitures
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Michael S. Weisbach
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)
NBER Working Paper No. w3484
This paper studies a sample of large acquisitions completed between 1971 arid 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. Using the accounting gain or loss recognized by the acquirer, press reports, and the sale price, we characterize the ex post success of the divested acquisitions and consider only 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer arid target) returns at the acquisition announcement are significantly lower for unsuccessful acquisitions than for divestitures not classified as unsuccessful arid for acquisitions not divested. These results suggest that market reactions to acquisition announcements reflect expectations of future profits and that unprofitable acquisitions are recognized as such when initiated. Diversifying acquisitions are almost four times more likely to be divested than related acquisitions. However, we do not find strong evidence that diversifying acquisitions were less successful than related ones.
Number of Pages in PDF File: 39working papers series
Date posted: July 5, 2004
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