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Long-run post-merger stock performance of UK acquiring firms: a stochastic dominance perspective

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  • Abhay Abhyankar
  • Keng-Yu Ho
  • Huainan Zhao
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    Abstract

    Using the idea of stochastic dominance, the long-run post-merger stock performance of UK acquiring firms is studied. Performance is compared by using the entire distribution of returns rather than only the mean as in traditional event studies. The main results are as follows: First, it is found that, in general, acquiring firms do not significantly underperform in three years after merger since no evidence of first- or second-order stochastic dominance relation between acquirer and benchmark portfolios is observed. Second, it is found that acquirers paying excessively large premiums are stochastically dominated by their benchmark portfolio implying that overpayment is a possible reason for post-merger underperformance. Consistent with previous studies, it is found that cash financed mergers outperform stock financed ones. Finally, no evidence is observed that glamour acquirers underperform value ones as no stochastic dominance relations between the two. In general, the results underline the importance of examining long-run post-merger stock performance from alternative perspectives.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100500065305
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 15 (2005)
    Issue (Month): 10 ()
    Pages: 679-690

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    Handle: RePEc:taf:apfiec:v:15:y:2005:i:10:p:679-690

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    Web page: http://www.tandfonline.com/RAFE20

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    Web: http://www.tandfonline.com/pricing/journal/RAFE20

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    References

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    Cited by:
    1. Enrico Tanuwidjaja, 2006. "Multi Factor SUR in Event Study Analysis : Evidence from M&A in Singapore’s Financial Industry," Finance Working Papers 22577, East Asian Bureau of Economic Research.
    2. Chikashi Tsuji, 2006. "Does EVA beat earnings and cash flow in Japan?," Applied Financial Economics, Taylor & Francis Journals, vol. 16(16), pages 1199-1216.
    3. Bryan Mase, 2006. "Investor awareness and the long-term impact of FTSE 100 index redefinitions," Applied Financial Economics, Taylor & Francis Journals, vol. 16(15), pages 1113-1118.
    4. Enrico Tanuwidjaja, 2006. "Multi Factor SUR in Event Study Analysis: Evidence from M&A in Singapore’s Financial Industry," SCAPE Policy Research Working Paper Series 0607, National University of Singapore, Department of Economics, SCAPE.
    5. Enrico Tanuwidjaja, 2007. "Multi-factor SUR in event study analysis: evidence from M&A in Singapore's financial industry," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(1), pages 55-62, January.

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