Winning by Losing: Evidence on the Long-Run Effects of Mergers

81 Pages Posted: 5 Apr 2018

See all articles by Ulrike Malmendier

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Enrico Moretti

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Florian S. Peters

University of Amsterdam

Multiple version iconThere are 3 versions of this paper

Date Written: March 2018

Abstract

We propose a novel approach to measuring returns to mergers. In a new data set of close bidding contests we use losers' post-merger performance to construct the counterfactual performance of winners had they not won the contest. Stock returns of winners and losers closely track each other over the 36 months before the merger, corroborating our approach to identification. Bidders are also very similar in terms of Tobins Q, profitability and other accounting measures. Over the three years after the merger, however, losers outperform winners by 24 percent. Commonly used methodologies such as announcement returns fail to identify acquirors' underperformance.

Suggested Citation

Malmendier, Ulrike and Moretti, Enrico and Peters, Florian S., Winning by Losing: Evidence on the Long-Run Effects of Mergers (March 2018). CEPR Discussion Paper No. DP12830, Available at SSRN: https://ssrn.com/abstract=3155166

Ulrike Malmendier (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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Enrico Moretti

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94720-3880
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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Florian S. Peters

University of Amsterdam ( email )

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Amsterdam, 1018 TW
Netherlands

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