Why Does Size Matter So Much for Bidder Announcement Returns?
41 Pages Posted: 20 Oct 2015 Last revised: 20 Jul 2017
Date Written: June 6, 2017
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: Suggested Citation