Overvaluation, Bidder Returns, and the Method of Payment in Acquisitions: Evidence from Serial Acquirers

49 Pages Posted: 15 Mar 2012 Last revised: 12 Nov 2016

See all articles by Antonio J. Macias

Antonio J. Macias

Baylor University

P. Raghavendra Rau

University of Cambridge

Aris Stouraitis

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Date Written: November 11, 2016

Abstract

Serial acquirers conduct the vast majority of acquisitions in the U.S. Serial acquirers appear to strategically shift between methods of payment based on changes in their own characteristics, using overvalued stock in stock-financed acquisitions during short windows of opportunity. Acquirer overvaluation increases the speed to the next acquisition and the propensity to pay with stock. The market reacts positively to the initial stock-financed acquisitions by overvalued acquirers. As the overvaluation of stock acquirers declines while they complete more deals, they accelerate the speed to the next acquisition. Acquirers that pay with overvalued stock experience negative excess returns when the acquisition spree goes on too long.

Keywords: Serial acquirers; Methods of payment; Firm characteristics; Overvaluation

JEL Classification: G14; G34; G35

Suggested Citation

Macias, Antonio J. and Rau, P. Raghavendra and Stouraitis, Aristotelis, Overvaluation, Bidder Returns, and the Method of Payment in Acquisitions: Evidence from Serial Acquirers (November 11, 2016). Available at SSRN: https://ssrn.com/abstract=2022171 or http://dx.doi.org/10.2139/ssrn.2022171

Antonio J. Macias (Contact Author)

Baylor University ( email )

Hankamer School of Business
Waco, TX 76798
United States

P. Raghavendra Rau

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Aristotelis Stouraitis

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

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