Publication Type
Conference Paper
Version
acceptedVersion
Publication Date
8-2011
Abstract
Overvaluation may motivate a firm to use its stock to acquire a target whose stock is not as overpriced (Shleifer and Vishny (2003)). Though hypothetically desirable, these acquisitions in practice create little, if any, value for acquirer shareholders. Two factors often impede value creation: payment of a large premium to the target and lack of economic synergies in the acquisition. We find that overvaluationdriven stock acquirers suffer worse operating performance and lower long-run stock returns than control firms that are in the same industry, similarly overvalued at the same time, have similar size and Tobin’s q, but have not pursued an acquisition. Our findings suggest that stock overvaluation increases agency costs and the resulting actions potentially benefit managers more than shareholders (Jensen (2005)).
Keywords
Mergers and acquisitions, Overvaluation, Operating performance, Agency costs, CEO compensation
Discipline
Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
European Finance Association Meeting, 17-20 August 2011
City or Country
Stockholm, Sweden
Citation
FU, Fangjian; LIN, Leming; and OFFICER, Micah.
Acquisitions Driven By Stock Overvaluation: Are They Good Deals?. (2011). European Finance Association Meeting, 17-20 August 2011.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/3157
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://fisher.osu.edu/blogs/efa2011/files/CFE_10_1.pdf