Relative Equity Market Valuation Conditions and Acquirers’ Gains

Andriosopoulos, D., and L.G Barbopoulos, Relative Equity Market Valuation Conditions and Acquirers’ Gains, Review of Quantitative Finance and Accounting volume 49, pages 855–884 (2017).

Posted: 16 Mar 2021

Date Written: 2017

Abstract

We examine whether the relative equity market valuation conditions (EMVCs) in the countries of merging firms help acquirers’ managers to time the announcements of both domestic and foreign targets. After controlling for several deal- and merging firm-specific features we find that the number of acquisitions and acquirers’ gains are higher during periods of high-EMVCs at home, irrespective of the domicile of the target. We also find that the higher gains of foreign target acquisitions realized during periods of high- EMVCs at home stem from acquiring targets based in the RoW (=World-G7), rather than the G6 (=G7-UK) group of countries. We argue that this is due to the low correlation of EMVCs between the UK (home) and the RoW group of countries. However, these gains disappear or even reverse during the post-announcement period. Moreover, acquisitions of targets domiciled in the RoW (G6) countries yield higher (lower) gains than acquisitions of domestic targets during periods of high-EMVCs at home. This suggests that the relative EMVCs between the merging firms’ countries allow acquirers’ managers to time the market and acquire targets at a discount, particularly in countries in which acquirers’ stocks are likely to be more overvalued than the targets’ stocks.

Keywords: Acquirers’ gains, Relative equity market valuation conditions, Abnormal returns, Post-merger performance

JEL Classification: G11, G14, G34

Suggested Citation

Andriosopoulos, Dimitris and Barbopoulos, Leonidas G., Relative Equity Market Valuation Conditions and Acquirers’ Gains (2017). Andriosopoulos, D., and L.G Barbopoulos, Relative Equity Market Valuation Conditions and Acquirers’ Gains, Review of Quantitative Finance and Accounting volume 49, pages 855–884 (2017)., Available at SSRN: https://ssrn.com/abstract=3797072

Dimitris Andriosopoulos (Contact Author)

Strathclyde Business School ( email )

199 Cathedral Street
Department of Accounting and Finance
Glasgow, G4 0QU
United Kingdom
+44(0)1415483892 (Phone)

HOME PAGE: http://www.strath.ac.uk/staff/andriosopoulosdimitrisdr/

Leonidas G. Barbopoulos

University of Edinburgh ( email )

University of Edinburgh Business School
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

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