Divergence of Opinion and Post-Acquisition Performance

31 Pages Posted: 12 Oct 2006

See all articles by George Alexandridis

George Alexandridis

ICMA Centre, Henley Business School

Antonios Antoniou

Wealth Associates

Dimitris Petmezas

Durham University Business School

Date Written: January 2007


We examine the relation between divergence of opinion about the value of the acquiring firm in the pre-acquisition announcement period and post-acquisition stock returns. We find that acquirers subject to high opinion dispersion earn lower future returns than acquirers subject to low dispersion. It appears that, on average, only acquirers in the high divergence of opinion subset experience significant negative post-event abnormal returns. In the spirit of Miller (1977), such evidence implies that high pre-event investor disagreement leads to systematic overpricing of acquirers that manifests itself through long-run underperformance of their stock. The documented misvaluation persists irrespective of the opinion divergence proxy and performance evaluation method used and after controlling for several common deal and acquirer characteristics.

Keywords: Divergence of Opinion, Mergers and Acquisitions, Long-Run Performance, Idiosyncratic Volatility, Analyst Forecast Dispersion.

JEL Classification: G11, G14, G34

Suggested Citation

Alexandridis, George and Antoniou, Antonios and Petmezas, Dimitris, Divergence of Opinion and Post-Acquisition Performance (January 2007). Available at SSRN: https://ssrn.com/abstract=936951 or http://dx.doi.org/10.2139/ssrn.936951

George Alexandridis (Contact Author)

ICMA Centre, Henley Business School ( email )

Whiteknights Campus
P.O. Box 242
Reading, RG6 6BA
United Kingdom
+44 (0) 118 378 4387 (Phone)

Antonios Antoniou

Wealth Associates ( email )

Alpine House,
Honeypot Lane
London, NW9 9RX
United Kingdom

Dimitris Petmezas

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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