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Are Acquisitions Unique? Evidence of the Pedestrian Nature of Post-Merger Returns

41 Pages Posted: 15 Mar 2010 Last revised: 14 Dec 2012

Sandra Mortal

University of Alabama - Culverhouse College of Commerce & Business Administration

Michael J. Schill

University of Virginia ­ Darden School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 12, 2012

Abstract

This paper compares firm stock returns associated with acquired and organic (non-acquired) asset growth. Using a large sample of U.S. firms, we show that the poor post-deal returns that have been associated with acquisitions are not unique but similar to the returns of other firms that grow organically at the same rate. This observation calls into question a large existing literature by asserting that the distinguishing characteristic associated with acquiring firms is simply their tendency to expand their balance sheet. Tests using analyst forecast errors and operating returns provide similar patterns. By proposing that investors systematically and symmetrically overcapitalize acquired and organic growth, the findings reframe our understanding of both the merger and asset growth literature.

Keywords: takeover returns, asset growth, long-run returns

JEL Classification: G14, G34

Suggested Citation

Mortal, Sandra and Schill, Michael J., Are Acquisitions Unique? Evidence of the Pedestrian Nature of Post-Merger Returns (December 12, 2012). Available at SSRN: https://ssrn.com/abstract=1571644 or http://dx.doi.org/10.2139/ssrn.1571644

Sandra Mortal

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Michael J. Schill (Contact Author)

University of Virginia ­ Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm

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