Anticipation, Acquisitions and Bidder Returns: Industry Shocks and the Transfer of Information Across Rivals

The Review of Financial Studies, Forthcoming

58 Pages Posted: 25 Apr 2011 Last revised: 24 May 2011

See all articles by Jie Cai

Jie Cai

Drexel University

Moon H. Song

San Diego State University - Finance Department

Ralph A. Walkling

Drexel University - Lebow College of Business

Date Written: January 1, 2011

Abstract

We document market anticipation of merger bids and that less anticipated bids earn significantly higher announcement returns. Subsequent bidders experience significant and positive returns surrounding initial industry bid announcements. These results suggest that announcement period returns underestimate the wealth effects of bidding. After recognizing anticipation, bidding activity is, on average, a significant wealth-creating event.

Moreover, bidders pursuing public targets increase shareholder wealth and bidders in stock swaps do not lose. These results are in contrast to conventional wisdom. Our results shed light on the correct magnitude of acquisition returns and on information transfer throughout an industry surrounding an economic shock.

Keywords: Mergers and Acquisitions, Anticipation, Information Transfer, Industry Shock, Wealth Effects

JEL Classification: G34, G14

Suggested Citation

Cai, Jie and Song, Moon H. and Walkling, Ralph August, Anticipation, Acquisitions and Bidder Returns: Industry Shocks and the Transfer of Information Across Rivals (January 1, 2011). The Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1819782

Jie Cai (Contact Author)

Drexel University ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-1755 (Phone)
215-895-2955 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/CaiJ/

Moon H. Song

San Diego State University - Finance Department ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States
619-673-8925 (Phone)
619-594-1573 (Fax)

Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

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