Working Paper: NBER ID: w10200
Authors: Sara B. Moeller; Frederik P. Schlingemann; Ren M. Stulz
Abstract: Acquiring-firm shareholders lost 12 cents at the announcement of acquisitions for every dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 1.6 cents per dollar spent. Though the announcement losses to acquiring-firm shareholders in the 1980s are more than offset by gains to acquired-firm shareholders, the losses of bidders exceed the gains of targets from 1998 through 2001 by $134 billion. The 1998-2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisition announcements by firms with extremely high valuations. Without these announcements, the wealth of acquiring-firm shareholders would have increased. The large losses are consistent with the existence of negative synergies from the acquisitions, but the size of the losses in relation to the consideration paid for the acquisitions is large enough that part of the losses most likely results from investors reassessing the standalone value of the bidders. Firms that announce acquisitions with large dollar losses perform poorly afterwards.
Keywords: mergers; acquisitions; shareholder wealth; negative synergies
JEL Codes: G31; G32; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high valuations (D46) | poor acquisition decisions (L15) |
| acquisition announcements (G34) | shareholder wealth destruction (G34) |
| high valuations (D46) | negative abnormal returns (G12) |
| negative abnormal returns (G12) | poor acquisition performance (L15) |
| acquisition announcements (G34) | market reassessment of firm value (G32) |
| high valuations (D46) | managerial discretion (M54) |
| managerial discretion (M54) | negative abnormal returns (G12) |