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What drives acquisitions?: Market valuations and bidder performance

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  • Petmezas, Dimitris

Abstract

Given the recent theoretical development that documents stock market misvaluations' driven acquisition, this paper examines the relation between market valuations and bidder performance. We focus on hot stock markets and find that bidder reactions to mergers, in both the short- and long-run period, are consistent with the predictions of investors' sentiment (optimism) after controlling for target type and method of payment. Managers that undertake mergers during bullish periods are rewarded by the generalized upward trend of the market in the short-run. However, this is followed by long-term reversals as the market learns only gradually that many of the mergers undertaken during hot periods were not carefully evaluated and were made under the pressure of 'urge to merge' to take advantage of the overall market status of a particular period.

Suggested Citation

  • Petmezas, Dimitris, 2009. "What drives acquisitions?: Market valuations and bidder performance," Journal of Multinational Financial Management, Elsevier, vol. 19(1), pages 54-74, February.
  • Handle: RePEc:eee:mulfin:v:19:y:2009:i:1:p:54-74
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    Cited by:

    1. Zhu, PengCheng, 2011. "Persistent performance and interaction effects in sequential cross-border mergers and acquisitions," Journal of Multinational Financial Management, Elsevier, vol. 21(1), pages 18-39, February.
    2. repec:fau:fauart:v:67:y:2017:i:5:p:423-438 is not listed on IDEAS
    3. Gregory, Alan & O'Donohoe, Sheila, 2014. "Do cross border and domestic acquisitions differ? Evidence from the acquisition of UK targets," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 61-69.

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