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Shall One Invest in Cancelled Targets after the Termination of Mergers and Acquisitions?

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Author Info

  • Gene C. Lai

    (Department of Finance, Insurance, and Real Estate, Washington State University, U.S.A.)

  • Keith M. Moore

    (The Peter J. Tobin College of Business, St. John's University, U.S.A.)

  • Henry R. Oppenheimer

    (College of Business Administration, University of Rhode Island, U.S.A.)

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    Abstract

    Many portfolio managers on Wall Street believe that investing in cancelled targets after the termination of mergers and acquisitions is a profitable strategy because arbitrageurs usually unwind their position after the cancellation announcement. While the anecdotal evidence shows that arbitrageurs do hold large positions in target companies when the deals are cancelled, we do not find that investing in cancelled targets is a profitable strategy. Our results also suggest that, in general, there is no relation between trading volume and abnormal returns. The overall evidence indicates that the target stocks are efficiently priced, and arbitrageurs unwinding their positions does not provide an opportunity for abnormal returns.

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    Bibliographic Info

    Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

    Volume (Year): 5 (2006)
    Issue (Month): 2 (August)
    Pages: 93-110

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    Handle: RePEc:ijb:journl:v:5:y:2006:i:2:p:93-110

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    Related research

    Keywords: merger arbitrage; risk arbitrage; cancelled transactions; terminated takeovers;

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    1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    2. Dodd, Peter & Ruback, Richard, 1977. "Tender offers and stockholder returns : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 5(3), pages 351-373, December.
    3. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    4. Bradley, Michael, 1980. "Interfirm Tender Offers and the Market for Corporate Control," The Journal of Business, University of Chicago Press, vol. 53(4), pages 345-76, October.
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