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A Dynamic Analysis of Growth via Acquisition

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  • Worawat Margsiri
  • Antonio S. Mello
  • Martin E. Ruckes

Abstract

Firms can grow through internal investment or through acquisition. While internal growth takes time, an acquisition provides cash flows immediately. The opportunity to grow internally affects the price of an acquisition as it is a fall-back option for the acquirer should negotiations break down. Assuming investors do not have full information about the time a firm requires to grow internally, acquirers earn positive returns before the announcement of an acquisition, and there are negative stock price reactions to acquisition announcements. This research provides predictions about how pre-announcement price run-up and negative announcement returns relate to integration costs and synergies from acquisition. Copyright 2008, Oxford University Press.

Suggested Citation

  • Worawat Margsiri & Antonio S. Mello & Martin E. Ruckes, 2008. "A Dynamic Analysis of Growth via Acquisition," Review of Finance, European Finance Association, vol. 12(4), pages 635-671.
    • Handle: RePEc:oup:revfin:v:12:y:2008:i:4:p:635-671
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    File URL: http://hdl.handle.net/10.1093/rof/rfn015
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    Citations

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    Cited by:

    1. Sarkar, Sudipto & Zhang, Chuanqian, 2015. "Investment policy with time-to-build," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 142-156.
    2. Guthrie, Graeme & Hobbs, Cameron, 2021. "How managerial ownership and the market for corporate control can improve investment timing," Journal of Banking & Finance, Elsevier, vol. 128(C).
    3. Wang, Wenyu, 2018. "Bid anticipation, information revelation, and merger gains," Journal of Financial Economics, Elsevier, vol. 128(2), pages 320-343.
    4. Agliardi, Elettra & Amel-Zadeh, Amir & Koussis, Nicos, 2016. "Leverage changes and growth options in mergers and acquisitions," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 37-58.
    5. Sholomitskaya, Elena (Шоломицкая, Елена), 2017. "New Capital Investment vs. M&A: Evidence from Russian Public Corporates [Инвестиции В Новый Капитал И Сделки Поглощений: Случай Российских Публичных Корпораций]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 226-249, February.
    6. Yang, Junhong & Guariglia, Alessandra & Guo, Jie (Michael), 2019. "To what extent does corporate liquidity affect M&A decisions, method of payment and performance? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 54(C), pages 128-152.
    7. Jukka Lempa, 2020. "Some results on optimal stopping under phase-type distributed implementation delay," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 91(3), pages 559-583, June.
    8. Tarsalewska, Monika, 2018. "Buyouts under the threat of preemption," Journal of Banking & Finance, Elsevier, vol. 89(C), pages 39-58.
    9. Hankir, Yassin & Rauch, Christian & Umber, Marc P., 2011. "Bank M&A: A market power story?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2341-2354, September.
    10. Habib, Michel A. & Mella-Barral, Pierre, 2013. "Skills, core capabilities, and the choice between merging, allying, and trading assets," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 31-48.

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