Do Acquirer Announcement Returns Reflect Value Creation?

Fisher College of Business Working Paper No. 2020-3-018

Charles A. Dice Center Working Paper No. 2020-18

87 Pages Posted: 31 Jul 2020 Last revised: 19 Oct 2020

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Utpal Bhattacharya

HKUST Business School

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 17, 2020

Abstract

Stock returns around acquisition announcements are widely viewed as being reflective of the net present value created by these transactions. As such, announcement returns should correlate with acquisition outcomes. Using a new measure of realized transaction-level acquisition failure, as well as acquirer firm-level performance, we show that while these outcomes can be predicted based on observable deal and firm characteristics, they are largely uncorrelated with announcement returns. Our results cast doubt on the usefulness of announcement returns as a measure of the value created in acquisitions and call for caution in other contexts.

Keywords: Mergers, Acquisitions, Announcement returns, Market effciency

JEL Classification: G02, G14, G32, G34

Suggested Citation

Ben-David, Itzhak and Bhattacharya, Utpal and Jacobsen, Stacey E., Do Acquirer Announcement Returns Reflect Value Creation? (October 17, 2020). Fisher College of Business Working Paper No. 2020-3-018, Charles A. Dice Center Working Paper No. 2020-18, Available at SSRN: https://ssrn.com/abstract=3664087 or http://dx.doi.org/10.2139/ssrn.3664087

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Utpal Bhattacharya

HKUST Business School ( email )

Clear Water Bay
Kowloon
Hong Kong

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department ( email )

United States

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