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Do Takeover Targets Underperform? Evidence from Operating and Stock Returns

  • Agrawal, Anup
  • Jaffe, Jeffrey F.
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    Financial economists seem to believe that takeovers are partly motivated by the desire to improve poorly performing firms. However, prior empirical evidence in support of this inefficient management hypothesis is rather weak. We provide a detailed re-examination of this hypothesis in a large scale empirical study. We find little evidence that target firms were performing poorly before acquisition, using either operating or stock returns. This result holds both for the sample as a whole and for subsamples of takeovers that are more likely to be disciplinary. We conclude that the conventional view that targets perform poorly is not supported by the data.

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    Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

    Volume (Year): 38 (2003)
    Issue (Month): 04 (December)
    Pages: 721-746

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    Handle: RePEc:cup:jfinqa:v:38:y:2003:i:04:p:721-746_00
    Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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