Do Wealth Creating Mergers and Acquisitions Really Hurt Bidder Shareholders?

69 Pages Posted: 31 Oct 2014 Last revised: 17 Feb 2017

See all articles by Mark Humphery-Jenner

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Date Written: February 14, 2017

Abstract

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

Humphery-Jenner, Mark and Masulis, Ronald W. and Swan, Peter Lawrence, Do Wealth Creating Mergers and Acquisitions Really Hurt Bidder Shareholders? (February 14, 2017). FIRN Research Paper No. 2517209. Available at SSRN: https://ssrn.com/abstract=2517209 or http://dx.doi.org/10.2139/ssrn.2517209

Mark Humphery-Jenner

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ronald W. Masulis

University of New South Wales, Sydney ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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