Return to Invested Capital and the Performance of Mergers and Acquisitions

Forthcoming, Management Science

41 Pages Posted: 26 Jun 2014 Last revised: 12 Oct 2017

See all articles by Jun Qian

Jun Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Julie Zhu

Fanhai International School of Finance(FISF), Fudan University

Date Written: December 28, 2016

Abstract

We evaluate the efficiency of capital deployment for acquiring firms before M&As, defined as the return on invested capital net of the cost of capital, and link this measure to firms’ post-acquisition performance. Acquirers with higher, pre-acquisition net returns on investment have superior long-run operating and stock performance than do acquirers with lower returns. Acquirers with low net returns on investment also underperform matching non-acquirers. The relationship between pre-acquisition investment return and post-acquisition performance is weakened when CEO turnover occurs after deal completion. These results imply that managerial ability in deploying capital and creating value for shareholders persists through M&As.

Keywords: Merger and acquisition, invested capital, stock return, return on assets, CEO turnover

JEL Classification: G14, G34, M41

Suggested Citation

Qian, Jun and Zhu, Julie, Return to Invested Capital and the Performance of Mergers and Acquisitions (December 28, 2016). Forthcoming, Management Science. Available at SSRN: https://ssrn.com/abstract=2458816 or http://dx.doi.org/10.2139/ssrn.2458816

Jun Qian (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Julie Zhu

Fanhai International School of Finance(FISF), Fudan University ( email )

220 Handan Road
Shanghai, 200433
China

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