Abnormal Returns and Expected Managerial Performance of Target Firms

Financial Management, Vol. 29, No. 1, Spring 2000

Posted: 14 Aug 2001

See all articles by Al (Aloke) Ghosh

Al (Aloke) Ghosh

UNC Charlotte

Chi-Wen Jevons Lee

Tulane University - A.B. Freeman School of Business; Tsinghua University - School of Economics & Management

Abstract

We document a negative association between the market valuation of a target firm around the announcement date and the target firm's future performance predicted by Value Line. This result is robust after controlling for possible simultaneous equation bias. We provide evidence of a systematic decline in target firms' operating performance over the five-year period prior to the takeover. It seems that the capital market is willing to pay a higher price for target firms that performed poorly in the past and are expected to perform even worse in the future. We also show that the greater the decline the future operating performance, as predicted by Value Line, the more likely that the firm will become a takeover target. We hypothesize that disciplining a poorly performing target firm through takeovers is a possible explanation for the above results.

Note: Previously titled Accounting Information and Market Valuation of Target Firms

JEL Classification: D46

Suggested Citation

Ghosh, Al (Aloke) and Lee, Chi-Wen Jevons, Abnormal Returns and Expected Managerial Performance of Target Firms. Financial Management, Vol. 29, No. 1, Spring 2000, Available at SSRN: https://ssrn.com/abstract=271375

Al (Aloke) Ghosh (Contact Author)

UNC Charlotte ( email )

9201 University City Blvd
Charlotte, NC 28223
United States

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

Chi-Wen Jevons Lee

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States
504-862-8485 (Phone)

Tsinghua University - School of Economics & Management ( email )

Beijing 100084
China
86-10-6277-2942 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,423
PlumX Metrics