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

Author

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  • Ulrike Malmendier
  • Enrico Moretti
  • Florian S Peters

Abstract

We propose a novel approach for measuring returns to mergers. In a new data set of close bidding contests, we use losers’ post-merger performance to construct the counterfactual performance of winners had they not won the contest. Stock returns of winners and losers closely track each other over the 36 months before the merger, corroborating our identification approach. Bidders are also very similar in terms of Tobins q, profitability, and other accounting measures. Over the 3 years after the merger, however, losers outperform winners by 24%. Commonly used methodologies, such as announcement returns, fail to identify acquirer underperformance. Received October 31, 2016; editorial decision October 29, 2017 by Editor Francesca Cornelli.

Suggested Citation

  • Ulrike Malmendier & Enrico Moretti & Florian S Peters, 2018. "Winning by Losing: Evidence on the Long-run Effects of Mergers," The Review of Financial Studies, Society for Financial Studies, vol. 31(8), pages 3212-3264.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:8:p:3212-3264.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy009
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    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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