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Post-Acquisition Performance in the Short and Long Run Evidence from the Copenhagen Stock Exchange 1993-1997

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Author Info
Jakobsen, Jan (Department of Finance, Copenhagen Business School)
Voetmann, Torben (Department of Finance, Copenhagen Business School)

Additional information is available for the following registered author(s):

Abstract

This paper investigates the short-run price adjustment around the acquisition announce-ment

and the long-run upward bias of the cross-sectional average buy-and-hold returns.

We apply the geometric Brownian motion model to decompose the cross-sectional ave r-age

long-run returns into mean components and volatility components. The decomposi-tion

is necessary in order to interpret security performance correctly using the measure of

wealth relatives. This procedure is useful for any studies of long-run security perform-ance.

The most surprising finding is that the long-horizon abnormal return after three

years is not significantly different from zero. This implies that the acquiring firms do not

under perform significantly compared to the market. That result stands in contrast to

findings of other studies, and it may reflect that earlier studies do not adjust for the vola-tility

component. This indicates that the market efficiency hypothesis is intact in the long

run. It is only in the very short run, i.e. a few days around the acquisition announcements,

that the market makes a significant adjustment to uphold the efficiency hypothesis.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7190
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Publisher Info
Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2000-4.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 30 pages
Date of creation: 01 Oct 1999
Date of revision:
Handle: RePEc:hhs:cbsfin:2000_004

Contact details of provider:
Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
Email:
Web page: http://www.cbs.dk/departments/finance/
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For technical questions regarding this item, or to correct its listing, contact: (Lars Nondal).

Related research
Keywords: Event-study methods; wealth relatives; long-run returns; acquisitions;

Other versions of this item:

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

References listed on IDEAS
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  1. Robert S. Harris & Julian Franks & Colin Mayer, 1987. "Means of Payment in Takeovers: Results for the U.K. and U.S," NBER Working Papers 2456, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. 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. [Downloadable!] (restricted)
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    Other versions:
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  6. Linda Canina & Roni Michaely & Richard Thaler & Kent Womack, 1998. "Caveat Compounder: A Warning about Using the Daily CRSP Equal-Weighted Index to Compute Long-Run Excess Returns," Journal of Finance, American Finance Association, vol. 53(1), pages 403-416, 02. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Sung C. Bae & Sivagnanam Sakthivel, 2000. "An Empirical Analysis of Exchange Ratio Determination Models for Merger: A Note," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 27(3-4), pages 511-521. [Downloadable!] (restricted)
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  12. Bradley, Michael & Desai, Anand & Kim, E. Han, 1983. "The rationale behind interfirm tender offers : Information or synergy?," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 183-206, April. [Downloadable!] (restricted)
  13. repec:bla:jbfnac:v:27:y:2000:i:5&6:p:523-554 is not listed on IDEAS
  14. Robert W. Faff & David Hillier & Joseph Hillier, 2000. "Time Varying Beta Risk: An Analysis of Alternative Modelling Techniques," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 27(5&6), pages 523-554. [Downloadable!] (restricted)
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  17. Sung C. Bae & Sivagnanam Sakthivel, 2000. "An Empirical Analysis of Exchange Ratio Determination Models for Merger: A Note," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 27(3&4), pages 511-521. [Downloadable!] (restricted)
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