Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions
44 Pages Posted: 14 Jan 2016 Last revised: 14 Sep 2017
Date Written: August 7, 2017
We show that M&A deals that are announced when the bidder's relative value (ratio of bidder's equity value to target's equity value) is closer to its 52-week high feature higher offer premium, lower (higher) announcement returns for the bidding (target) firm, and are more likely to fail, all else equal. Yet, bidders in such deals also experience large abnormal returns in the two-year period surrounding the announcement. Our results suggest that bidders strategically choose announcement timing to exploit relative misvaluation, and cast doubt on the idea that announcement returns represent the gains to long-term shareholders of bidding firms.
Keywords: Relative value, Mergers and acquisitions, Market Timing, Misvaluation, Announcement Timing
JEL Classification: G34, G14
Suggested Citation: Suggested Citation