Value Creation Estimates Beyond Announcement Returns: Mega-Mergers versus Other Mergers

52 Pages Posted: 10 Nov 2009 Last revised: 9 Feb 2012

Dinara Bayazitova

University of North Carolina at Chapel Hill

Matthias Kahl

University of Colorado at Boulder - Leeds School of Business

Rossen I. Valkanov

University of California, San Diego (UCSD) - Rady School of Management

Date Written: February 7, 2012

Abstract

Much of the literature considers only short-term acquirer announcement returns when analyzing which mergers create value for the acquirer. However, announcement returns combine information about value creation because of the merger and a revaluation of the acquirer’s stand-alone value. We use three methods to infer revaluation-free value creation directly because of the merger. We find that despite their negative average announcement returns, acquisitions of public targets typically do not destroy value and, by most measures, create value. Only mega-mergers, the top 1% of mergers in absolute transaction value, destroy value for the acquirer. In contrast, non-mega-mergers create value for the acquirer. We also show that the value destruction in mega-mergers is driven by managerial motives and weak corporate governance.

Keywords: Mergers, Value Creation, Announcement Returns, Corporate Governance

JEL Classification: G34

Suggested Citation

Bayazitova, Dinara and Kahl, Matthias and Valkanov, Rossen I., Value Creation Estimates Beyond Announcement Returns: Mega-Mergers versus Other Mergers (February 7, 2012). Available at SSRN: https://ssrn.com/abstract=1502385 or http://dx.doi.org/10.2139/ssrn.1502385

Dinara Bayazitova

University of North Carolina at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Matthias Kahl (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

UCB 419
Boulder, CO 80309-0419
United States
(303) 492-0141 (Phone)

Rossen Valkanov

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858-534-0898 (Phone)

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