Do Shareholders of Acquiring Firms Gain from Acquisitions?

We examine a sample of 12,023 acquisitions by public firms from 1980 to 2001. Shareholders of these firms lost a total of $218 billion when acquisitions were announced. Though shareholders lose throughout our sample period, losses associated with acquisition announcements after 1997 are dramatic. Small firms gain from acquisitions, so that shareholders of small firms gained $8 billion when acquisitions were announced and shareholders of large firms lost $226 billion. We examine the cross-sectional variation in the announcement returns of acquisitions. Small firm shareholders earn systematically more when acquisitions are announced. This size effect is typically more important than how an acquisition is financed and than the organizational form of the assets acquired. The only acquisitions that have positive aggregate gains are acquisitions of subsidiaries.

[1]  D. Hirshleifer,et al.  Does Investor Misvaluation Drive the Takeover Market? , 2003 .

[2]  Audra L. Boone,et al.  Corporate Restructuring and Corporate Auctions , 2003 .

[3]  Erik Stafford,et al.  Price Pressure Around Mergers , 2002 .

[4]  Jeffry Netter,et al.  What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions , 2002 .

[5]  Serguey Braguinsky,et al.  Bidder Discounts and Target Premia in Takeovers , 2002 .

[6]  René M. Stulz,et al.  Divestitures and the liquidity of the market for corporate assets , 2002 .

[7]  Erik Stafford,et al.  New Evidence and Perspectives on Mergers , 2001 .

[8]  James S. Linck,et al.  Long-Run Performance Following Private Placements of Equity , 2001 .

[9]  Erik Stafford,et al.  Managerial Decisions and Long-Term Stock Price Performance , 1999 .

[10]  G. Schwert,et al.  Hostility in Takeovers: In the Eyes of the Beholder? , 1999 .

[11]  Saeyoung Chang,et al.  Takeovers of Privately Held Targets, Methods of Payment, and Bidder Returns , 1998 .

[12]  F. Eugene.  FAMA, . Market efficiency, long-term returns, and behavioral finance, Journal of Financial Economics . , 1998 .

[13]  R A Jarrow,et al.  Handbooks in Operations Research and Management Science Volume 9 Finance , 1997 .

[14]  Tim Loughran,et al.  The Operating Performance of Firms Conducting Seasoned Equity Offerings , 1997 .

[15]  Anand M. Vijh,et al.  Do Long‐Term Shareholders Benefit From Corporate Acquisitions? , 1997 .

[16]  Mark M. Carhart.  On Persistence in Mutual Fund Performance , 1997 .

[17]  Brad M. Barber,et al.  Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics , 1997 .

[18]  E. Fama.  Market Efficiency, Long-Term Returns, and Behavioral Finance , 1997 .

[19]  René M. Stulz,et al.  Timing, investment opportunities, managerial discretion, and the security issue decision , 1996 .

[20]  Luigi Zingales.  Insider Ownership and the Decision to Go Public , 1995 .

[21]  Ronald W. Masulis,et al.  Seasoned Equity Offerings: A Survey , 1995 .

[22]  Richard L. Smith,et al.  Market Discounts and Shareholder Gains for Placing Equity Privately , 1993 .

[23]  E. Fama,et al.  Common risk factors in the returns on stocks and bonds , 1993 .

[24]  Sheridan Titman,et al.  On Persistence in Mutual Fund Performance , 1997 .

[25]  René M. Stulz,et al.  A Test of the Free Cash Flow Hypothesis: The Case of Bidder Returns , 1991 .

[26]  M. Weisbach,et al.  The Success of Acquisitions: Evidence from Disvestitures , 1990 .

[27]  Karen H. Wruck.  Equity ownership concentration and firm value: Evidence from private equity financings , 1989 .

[28]  Andrei Shleifer,et al.  Do Managerial Objectives Drive Bad Acquisitions? , 1989 .

[29]  Larry Y. Dann,et al.  Corporate financial policy and corporate control: A study of defensive adjustments in asset and ownership structure , 1988 .

[30]  R. Roll,et al.  The Hubris Hypothesis of Corporate Takeovers , 1986 .

[31]  Jerold B. Warner,et al.  Using daily stock returns: The case of event studies , 1985 .

[32]  Paul H. Malatesta.  The wealth effect of merger activity and the objective functions of merging firms , 1983 .

[33]  Robert F. Bruner,et al.  The gains to bidding firms from merger , 1983 .

[34]  Sanford J. Grossman,et al.  The free-rider problem and the theory of the corporation , 1980 .

[35]  G. Mandelker.  Risk and return: The case of merging firms , 1974 .

[36]  J. Jaffe.  Special Information and Insider Trading , 1974 .