Valuation Effects of Short Sale Constraints: The Case of Corporate Takeovers

16 Pages Posted: 23 Oct 2006

See all articles by George Alexandridis

George Alexandridis

ICMA Centre, Henley Business School

Antonios Antoniou

Wealth Associates

Huainan Zhao

Loughborough University - School of Business and Economics

Abstract

We examine the relation between the degree of short sale constraints for acquiring firms' equity and post takeover stock performance. We find that negative long-run abnormal returns appear to decline (in economic and statistical terms) as the extent and persistence of institutional block-holder ownership increase, after accounting for the size, book-to-market and method of payment effects. In the spirit of Miller (1977), such evidence implies that the degree of short sale constraints serves as an important determinant of acquiring firms' short-run overpricing. It appears that the presence of concentrated institutional presence mitigates and in most cases eliminates, through effective arbitrage, any short-run overpricing that may be responsible for the long-run underperformance of acquirers, preserving in this way efficiency in the takeover markets.

Suggested Citation

Alexandridis, George and Antoniou, Antonios and Zhao, Huainan, Valuation Effects of Short Sale Constraints: The Case of Corporate Takeovers. European Financial Management, Vol. 12, No. 5, pp. 747-762, November 2006. Available at SSRN: https://ssrn.com/abstract=939086 or http://dx.doi.org/10.1111/j.1468-036X.2006.00275.x

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

Huainan Zhao

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

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