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Winning by Losing: Evidence on the Long-Run Effects of Mergers

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  • Ulrike Malmendier
  • Enrico Moretti
  • Florian S. Peters

Abstract

Do acquirors profit from acquisitions, or do acquiring CEOs overbid and destroy shareholder value? We present a novel approach to estimating the long-run abnormal returns to mergers exploiting detailed data on merger contests. In the sample of close bidding contests, we use the loser's post-merger performance to construct the counterfactual performance of the winner had he not won the contest. We find that bidder returns are closely aligned in the years before the contest, but diverge afterwards: Winners underperform losers by 50 percent over the following three years. Existing methodologies, including announcement effects, fail to capture the acquirors' underperformance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18024.

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Date of creation: Apr 2012
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Handle: RePEc:nbr:nberwo:18024

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Cited by:
  1. Jeffrey T. Prince & Daniel H. Simon, 2014. "The Impact of Mergers on Quality Provision: Evidence from the Airline Industry," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2014-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Rahaman, Mohammad M., 2014. "Do managerial behaviors trigger firm exit? The case of hyperactive bidders," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 54(1), pages 92-110.

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