Do Wealth Creating Mergers and Acquisitions Really Hurt Bidder Shareholders?
69 Pages Posted: 31 Oct 2014 Last revised: 17 Feb 2017
Date Written: February 14, 2017
We examine the economic benefits of acquisitions of U.S. public firms. Estimating revelation biases concerning internal investment opportunities, we find that it produces a significant negative bidder announcement effect, often interpreted as shareholder wealth destruction. Examining exogenously failed bids, which lack revelation bias, we estimate that bidders capture roughly 77% of economic gains. The combined firm’s economic gains represent 15.4% of total assets. Adjusting for revelation bias over the acquisition bid cycle, we find that conventional methodologies understate bidder returns. We confirm the neoclassical view that takeovers are highly profitable for typical bidders, consistent with acquisitions generally being profitable investments.
Keywords: M&A, takeovers, acquisitions, synergies, targets, bidders, failed bids
JEL Classification: G34, G14
Suggested Citation: Suggested Citation