The (Missing) Relation Between Announcement Returns and Value Creation

Acquisition announcement returns are widely considered market-based assessments of value creation. Unfortunately, the data do not support this conjecture. We show that commonly used and new measures of realized acquisition outcomes are correlated among themselves, though derived from different sources. Furthermore, these out-comes are predictable using standard information known at the announcement time. In contrast, announcement returns also measured at the announcement time-are uncorrelated with these outcomes. Importantly, announcement returns even fail to predict the predictable components of these outcomes. Overall, there is no evidence that announcement returns capture expected or realized value creation.

Keywords: Announcement returns, mergers, acquisitions, value creation, deal quality, market efficiency

JEL Classification: G02, G14, G32, G34

Suggested Citation: Suggested Citation

Ben-David, Itzhak and Bhattacharya, Utpal and Jacobsen, Stacey E., The (Missing) Relation Between Announcement Returns and Value Creation (July 20, 2022). Fisher College of Business Working Paper No. 2020-3-018, Charles A. Dice Center Working Paper No. 2020-18, HKUST Business School Research Paper No. 2022-078, Available at SSRN: https://ssrn.com/abstract=3664087 or http://dx.doi.org/10.2139/ssrn.3664087