Working Paper: CEPR ID: DP12830
Authors: Ulrike Malmendier; Enrico Moretti; Florian Peters
Abstract: We propose a novel approach to measuring returns to mergers. In a new data set of closebidding contests we use losers' post-merger performance to construct the counterfactualperformance of winners had they not won the contest. Stock returns of winners andlosers closely track each other over the 36 months before the merger, corroboratingour approach to identi cation. Bidders are also very similar in terms of Tobins Q,pro tability and other accounting measures. Over the three years after the merger,however, losers outperform winners by 24 percent. Commonly used methodologiessuch as announcement returns fail to identify acquirors' underperformance.
Keywords: No keywords provided
JEL Codes: G34; G14; D03
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pre-merger performance (G34) | comparable winners and losers (P19) |
| loss of strategic flexibility (L21) | negative effects of mergers (G34) |
| post-merger integration costs (G34) | negative effects of mergers (G34) |
| pre-existing inefficiencies in target firms (L21) | negative effects of mergers (G34) |
| losing bidders in merger contests (G34) | outperform winning bidders (D44) |
| winners experience cumulative underperformance (G41) | losers (Y70) |