Publication Type
Journal Article
Version
submittedVersion
Publication Date
7-2013
Abstract
Theory and recent evidence suggest that overvalued firms can create value for shareholders if they exploit their overvaluation by using their stock as currency to purchase less overvalued firms. We challenge this idea and show that, in practice, overvalued acquirers significantly overpay for their targets. These acquisitions do not, in turn, lead to synergy gains. Moreover, these acquisitions seem to be concentrated among acquirers with the largest governance problems. CEO compensation, not shareholder value creation, appears to be the main motive behind acquisitions by overvalued acquirers.
Keywords
Mergers and acquisitions, Stock overvaluation, Operating performance, Agency costs, CEO compensation
Discipline
Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Financial Economics
Volume
109
Issue
1
First Page
24
Last Page
39
ISSN
0304-405X
Identifier
10.1016/j.jfineco.2013.02.013
Publisher
Elsevier
Citation
FU, Fangjian; LIN, Leming; and OFFICER, Micah.
Acquisitions Driven by Stock Overvaluation: Are they Good Deals?. (2013). Journal of Financial Economics. 109, (1), 24-39.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/3250
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.