Merger Waves, Pseudo Market Timing and Post-Merger Performance

32 Pages Posted: 13 Oct 2010 Last revised: 2 Jul 2016

Burcu Esmer

University of Pennsylvania - The Wharton School

Date Written: November 1, 2010

Abstract

Do managers time the market when they make merger decisions? Merger and acquisition waves seem to correspond with market tides, cresting with bull markets. A contentious debate exists over whether this trend indicates managerial market timing ability. Pseudo market timing, introduced by Schultz (2003, Journal of Finance 58, 483–517), provides an alternative hypothesis to explain abnormal performance following events even when managers cannot time the market. I find that acquiring firms which use stocks as the method of payment exhibit negative long-run abnormal returns in event-time, but not in calendar time. Simulations reveal that even when ex ante expected abnormal returns are zero (i.e. managers have no market timing ability), median ex post performance for acquirers is significantly negative when event-time is used. These findings support pseudo market timing as an explanation for acquiring firm underperformance in the context of stock mergers.

Keywords: mergers and acquisitions, pseudo market timing, market timing, long-run performance

JEL Classification: G34, G14

Suggested Citation

Esmer, Burcu, Merger Waves, Pseudo Market Timing and Post-Merger Performance (November 1, 2010). Available at SSRN: https://ssrn.com/abstract=1691903 or http://dx.doi.org/10.2139/ssrn.1691903

Burcu Esmer (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://https://fnce.wharton.upenn.edu/profile/_whrtn78/

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