Long‐Run Stock Performance and its Determinants for Asset Buyers

32 Pages Posted: 26 Jul 2014

See all articles by Sheng‐Syan Chen

Sheng‐Syan Chen

National Chengchi University

Yong‐Chin Liu

Asia University

I‐Ju Chen

Yuan Ze University - College of Management

Date Written: June/July 2014

Abstract

This paper examines the long‐term stock performance of asset purchasers and the determinants of cross‐sectional differences in performance. Our findings show that buyers’ stocks, on average, underperform following purchases. Buy‐and‐hold abnormal returns of buyers acquiring related assets are significantly higher than those acquiring unrelated assets, consistent with the focus hypothesis. Asset buyers with superior prior stock performance experience poorer long‐run performance than buyers with inferior prior stock performance, consistent with the prior performance hypothesis. Asset buyers that manage earnings upward, experience poorer long‐term abnormal stock performance than acquirers with downward earnings management, consistent with the earnings management hypothesis. The long‐term return evidence is to some degree consistent with the governance hypothesis but we find little support for the free cash flow hypothesis.

Keywords: fit hypothesis, free cash flow, earnings management, corporate governance, anti‐takeover provisions

Suggested Citation

Chen, Sheng-Syan and Liu, Yong‐Chin and Chen, I-Ju, Long‐Run Stock Performance and its Determinants for Asset Buyers (June/July 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 5-6, pp. 685-716, 2014. Available at SSRN: https://ssrn.com/abstract=2472215 or http://dx.doi.org/10.1111/jbfa.12065

Sheng-Syan Chen (Contact Author)

National Chengchi University

No. 64, Sec. 2, ZhiNan Rd., Wenshan District
Taipei 116, 116
Taiwan

Yong‐Chin Liu

Asia University

Tokyo 180-8629
Japan

I-Ju Chen

Yuan Ze University - College of Management ( email )

135, Far-East Rd.,
Chung-Li, Taoyuan 32003
Taiwan

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