Do Takeover Targets Under-Perform? Evidence from Operating and Stock Returns
Author | : Anup Agrawal |
Publisher | : |
Total Pages | : 43 |
Release | : 2011 |
ISBN-10 | : OCLC:1290243668 |
ISBN-13 | : |
Rating | : 4/5 (68 Downloads) |
Book excerpt: Financial economists seem to believe that takeovers are partly motivated by the desire to improve poorly-performing firms. However, prior empirical evidence in support of this inefficient management hypothesis is rather weak. We provide a detailed reexamination of this hypothesis in a large-scale empirical study. We find little evidence that target firms were performing poorly before acquisition, using either operating or stock returns. This result holds both for the sample as a whole and for sub-samples of takeovers that are more likely to be disciplinary. We conclude that the conventional view that targets perform poorly is not supported by the data.