How Informative Are Acquirer Announcement Returns? Evidence from Merger Waves
62 Pages Posted: 2 Aug 2018 Last revised: 6 Mar 2025
Date Written: March 06, 2025
Abstract
We hypothesize that investors with limited cognitive capacity cannot accurately process complex corporate transactions such as mergers and acquisitions over a short announcement window. As a result, short-term announcement returns are poor indications of long-term value creation. Analyzing a sample of deals categorized by industry merger waves, we identify acquirer overvaluation as an example of critical, hard-to-process factors affecting long-term performance. Our findings reveal that short-term acquirer returns largely reflect surface-level information such as deal characteristics, while deeper valuation effects take years to influence stock prices. Our results highlight the limited utility of short-term announcement returns in assessing acquisition value.
Keywords: acquirer announcement return, long-run stock performance, industry merger waves, stock misvaluation, limited attention
JEL Classification: G14, G34, G41
Suggested Citation: Suggested Citation