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Post-Acquisition Performance in the Short and Long Run Evidence from the Copenhagen Stock Exchange 1993-1997

Author

Listed:
  • Jakobsen, Jan

    (Department of Finance, Copenhagen Business School)

  • Voetmann, Torben

    (Department of Finance, Copenhagen Business School)

Abstract

This paper investigates the short-run price adjustment around the acquisition announce-ment and the long-run upward bias of the cross-sectional average buy-and-hold returns. We apply the geometric Brownian motion model to decompose the cross-sectional ave r-age long-run returns into mean components and volatility components. The decomposi-tion is necessary in order to interpret security performance correctly using the measure of wealth relatives. This procedure is useful for any studies of long-run security perform-ance. The most surprising finding is that the long-horizon abnormal return after three years is not significantly different from zero. This implies that the acquiring firms do not under perform significantly compared to the market. That result stands in contrast to findings of other studies, and it may reflect that earlier studies do not adjust for the vola-tility component. This indicates that the market efficiency hypothesis is intact in the long run. It is only in the very short run, i.e. a few days around the acquisition announcements, that the market makes a significant adjustment to uphold the efficiency hypothesis.

Suggested Citation

  • Jakobsen, Jan & Voetmann, Torben, 1999. "Post-Acquisition Performance in the Short and Long Run Evidence from the Copenhagen Stock Exchange 1993-1997," Working Papers 2000-4, Copenhagen Business School, Department of Finance.
  • Handle: RePEc:hhs:cbsfin:2000_004
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    File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7190
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    References listed on IDEAS

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    More about this item

    Keywords

    Event-study methods; wealth relatives; long-run returns; acquisitions;

    JEL classification:

    • 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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