Market Valuation and Acquisition Quality: Empirical Evidence (Previous Title: The Performance of Stock-Price Driven Acquisitions)

Posted: 27 Sep 2006 Last revised: 15 Jul 2013

See all articles by Christa H. S. Bouwman

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Kathleen P. Fuller

University of Mississippi - School of Business Administration

Amrita Nain

University of Iowa - Henry B. Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: 2009

Abstract

Existing research shows that significantly more acquisitions occur when stock markets are booming than when markets are depressed. Rhodes-Kropf and Viswanathan (2004) hypothesize that firm-specific and market-wide (mis-)valuations lead to an excess of mergers, and these will be value-destroying. This paper investigates whether acquisitions occurring during booming markets are fundamentally different from those occurring during depressed markets. We find that acquirers buying during high-valuation markets have significantly higher announcement returns but lower long-run abnormal stock and operating performance than those buying during low-valuation markets. We investigate possible explanations for the long-run underperformance and conclude it is consistent with managerial herding.

Note: Previously titled "The Performance of Stock-Price Driven Acquisitions"

Keywords: Mergers and Acquisitions

JEL Classification: G34, G12, M41

Suggested Citation

Bouwman, Christa H. S. and Petrie Fuller, Kathleen and Nain, Amrita, Market Valuation and Acquisition Quality: Empirical Evidence (Previous Title: The Performance of Stock-Price Driven Acquisitions) (2009). Review of Financial Studies, Vol. 22, No. 2, 2009. Available at SSRN: https://ssrn.com/abstract=932954 or http://dx.doi.org/10.2139/ssrn.404760

Christa H. S. Bouwman

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
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HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

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Kathleen Petrie Fuller

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Amrita Nain (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

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