Winning by Losing: Evidence on the Long-Run Effects of Mergers

Malmendier, Ulrike; Moretti, Enrico; Peters, Florian S.

doi:10.2139/ssrn.1787409

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Winning by Losing: Evidence on the Long-Run Effects of Mergers

58 Pages Posted: 19 Mar 2011 Last revised: 24 Apr 2012

See all articles by Ulrike Malmendier

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Enrico Moretti

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Florian S. Peters

University of Amsterdam

There are 3 versions of this paper

Date Written: April 15, 2012

Abstract

Do acquirors profit from acquisitions, or do acquiring CEOs overbid and destroy shareholder value? We present a novel approach to estimating the long-run abnormal returns to mergers exploiting detailed data on merger contests. In the sample of close bidding contests, we use the loser’s post-merger performance to construct the counterfactual performance of the winner had he not won the contest. We find that bidder returns are closely aligned in the years before the contest, but diverge afterwards: Winners underperform losers by 50 percent over the following three years. Existing methodologies, including announcement effects, fail to capture the acquirors’ underperformance.

Keywords: Mergers, Acquisitions, Misvaluation, Matching, Counterfactual

JEL Classification: G34, G14, D03

Suggested Citation: Suggested Citation

Malmendier, Ulrike and Moretti, Enrico and Peters, Florian S., Winning by Losing: Evidence on the Long-Run Effects of Mergers (April 15, 2012). Available at SSRN: https://ssrn.com/abstract=1787409 or http://dx.doi.org/10.2139/ssrn.1787409