Posted: 18 Apr 2001
This paper uses a methodology robust to recent criticisms of standard long-horizon event study tests to show that bidders in mergers underperform while bidders in tender offers overperform in the three years after the acquisition. However, the long-term underperformance of acquiring firms in mergers is predominantly caused by the poor post-acquisition performance of low book-to-market "glamour" firms. We interpret this finding as evidence that both the market and the management overextrapolate the bidder's past performance (as reflected in the bidder's book-to-market ratio) when they assess the desirability of an acquisition.
JEL Classification: G34
Suggested Citation: Suggested Citation
Vermaelen, Theo and Rau, P. Raghavendra, Glamour, Value and the Post-Acquisition Performance of Acquiring Firms. Journal of Financial Economics, Vol. 49, 1998. Available at SSRN: https://ssrn.com/abstract=262687