Market Valuation and Acquisition Quality: Empirical Evidence (Previous Title: The Performance of Stock-Price Driven Acquisitions)

Posted: 25 Jan 2009 Last revised: 15 Jul 2013

See all articles by Christa H. S. Bouwman

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Kathleen P. Fuller

University of Mississippi - School of Business Administration

Amrita Nain

University of Iowa - Henry B. Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2009

Abstract

Existing research shows that significantly more acquisitions occur when stock markets are booming than when markets are depressed. Rhodes-Kropf and Viswanathan () hypothesize that firm-specific and market-wide valuations lead to an excess of mergers, and these will be value destroying. This article investigates whether acquisitions occurring during booming markets are fundamentally different from those occurring during depressed markets. We find that acquirers buying during high-valuation markets have significantly higher announcement returns but lower long-run abnormal stock and operating performance than those buying during low-valuation markets. We investigate possible explanations for the long-run underperformance and conclude it is consistent with managerial herding.

Keywords: G34

Suggested Citation

Bouwman, Christa H. S. and Petrie Fuller, Kathleen and Nain, Amrita, Market Valuation and Acquisition Quality: Empirical Evidence (Previous Title: The Performance of Stock-Price Driven Acquisitions) (February 1, 2009). The Review of Financial Studies, Vol. 22, No. 2, pp. 633-679, 2009. Available at SSRN: https://ssrn.com/abstract=1331862 or http://dx.doi.org/hhm073

Christa H. S. Bouwman (Contact Author)

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Kathleen Petrie Fuller

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Amrita Nain

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
991
PlumX Metrics