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Why Does Size Matter So Much for Bidder Announcement Returns?

41 Pages Posted: 20 Oct 2015 Last revised: 20 Jul 2017

Christoph Schneider

Tilburg University - Department of Finance

Oliver G. Spalt

Tilburg University - Department of Finance

Date Written: June 6, 2017

Abstract

Bidder and target size are major determinants of bidder announcement returns in corporate acquisitions. The leading explanations in the literature attribute this to size proxying for underlying value drivers. A simple but powerful test casts doubt on size-as-proxy explanations: correlations between size and bidder announcement returns change sign across economically significant subsets of the takeover universe. A scaling framework in which size magnifies a given per-dollar value gain parsimoniously explains these sign-changes and yields additional testable predictions we confirm in the data. Our results advocate a fundamental shift in thinking about the role of size in takeovers.

Keywords: Mergers and Acquisitions, Size Effects, Scaling

JEL Classification: G34, G14

Suggested Citation

Schneider, Christoph and Spalt, Oliver G., Why Does Size Matter So Much for Bidder Announcement Returns? (June 6, 2017). Available at SSRN: https://ssrn.com/abstract=2676189

Christoph Schneider (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Oliver G. Spalt

Tilburg University - Department of Finance ( email )

Department of Finance
Tilburg University
Tilburg, 5000 LE
Netherlands
+31 13 466 3545 (Phone)

HOME PAGE: http://www.oliverspalt.com

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