How Informative Are Acquirer Announcement Returns? Evidence from Merger Waves

62 Pages Posted: 2 Aug 2018 Last revised: 6 Mar 2025

See all articles by Ming Dong

Ming Dong

York University - Schulich School of Business

Andreanne Tremblay

Université Laval - Département de Finance et Assurance

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

Dong, Ming and Tremblay, Andreanne, How Informative Are Acquirer Announcement Returns? Evidence from Merger Waves (March 06, 2025). Available at SSRN: https://ssrn.com/abstract=3224600 or http://dx.doi.org/10.2139/ssrn.3224600

Ming Dong

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

Andreanne Tremblay (Contact Author)

Université Laval - Département de Finance et Assurance ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

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