Why Bidders Lose?
14 Pages Posted: 1 Jul 2013 Last revised: 7 Jul 2013
Date Written: June 30, 2013
This paper tests the hypothesis of Jovanovic and Braguinsky (AER, 2004) that acquisition attempts convey negative information about the bidder’s existing projects. We study failed acquisition bids, which enable a before-and-after comparison of the bidder firm as is without the acquisition effects. We find that following failed bids, bidder firms exhibit a significant decline in operating performance. The performance decline is correlated with the stock price change during the bidding period. If the stock price reaction to acquisition announcements partly reflects negative information about bidders’ existing assets, stock-returns-based measures of value creation from acquisitions are underestimated.
Keywords: Mergers and Acquisitions, Failed Bids, Operating Performance, Stock Market Reaction; Stand-Alone Value
JEL Classification: G14, G34, D82
Suggested Citation: Suggested Citation