Do Acquirer Announcement Returns Reflect Value Creation?
Charles A. Dice Center Working Paper No. 2020-18
87 Pages Posted: 31 Jul 2020 Last revised: 19 Oct 2020
Date Written: October 17, 2020
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: Suggested Citation