Who Gains from Buying Bad Bidders?
Loyola Marymount University - Department of Finance
Virginia Commonwealth University (VCU) - School of Business
H. Gregory Waller
Virginia Commonwealth University School of Business
April 1, 2014
Journal of Financial and Quantitative Analysis (JFQA), Volume 49, Issue 2, April 2014
We study the value gains from takeovers of firms with poor acquisition histories. We document that the premium received by target shareholders is higher when the value loss from the targets’ prior acquisitions is larger. However, the gains to target shareholders seem to be offset by losses to acquiring shareholders. The average announcement return to acquiring shareholders is negative and decreasing in the value loss from the targets’ prior acquisitions. Additionally, the combined acquirer-target value created in these takeovers is insignificant. These results suggest that the value lost from targets’ prior acquisitions is not recovered through changes in corporate control.
Number of Pages in PDF File: 59
Keywords: mergers and acquisitions, market for corporate control, agency theory, corporate governance, shareholder wealth
JEL Classification: G00, G3, G30, G34, L00, L2, L20
Date posted: December 2, 2009 ; Last revised: February 26, 2016