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Value, valuation, and the long-run performance of merged firms

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  • Ma, Qingzhong
  • Whidbee, David A.
  • Zhang, Athena Wei
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    Abstract

    We propose an alternative measure of the long-term economic impact of mergers on firm value: post-acquisition changes in intrinsic value. Consistent with the literature on post-acquisition returns, the intrinsic value of merged firms decreases on average in the three years following deal completion, especially for firms with high initial intrinsic values. The loss of intrinsic value is driven primarily by decreases in expected earnings. Finally, using return decompositions, we find evidence that the poor post-acquisition stock returns documented in other studies can be attributed primarily to lost intrinsic value rather than changes in valuation levels.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 17 (2011)
    Issue (Month): 1 (February)
    Pages: 1-17

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    Handle: RePEc:eee:corfin:v:17:y:2011:i:1:p:1-17

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Mergers and acquisitions Post-acquisition performance Value Valuation;

    References

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    1. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August.
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    17. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    18. Agrawal, Anup & Jaffe, Jeffrey F & Mandelker, Gershon N, 1992. " The Post-merger Performance of Acquiring Firms: A Re-examination of an Anomaly," Journal of Finance, American Finance Association, vol. 47(4), pages 1605-21, September.
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    Cited by:
    1. Qingzhong Ma, 2013. "Investment banks advising takeover targets," Journal of Economics and Finance, Springer, vol. 37(3), pages 339-374, July.

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