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Are Stock‐for‐Stock Acquirers of Unlisted Targets Really Less Overvalued?
Author(s) -
Louis Henock
Publication year - 2013
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12022
Subject(s) - extant taxon , stock (firearms) , business , incentive , monetary economics , insider , accrual , insider trading , financial system , finance , economics , earnings , mechanical engineering , evolutionary biology , political science , law , engineering , biology , microeconomics
Extant studies assume that targets’ private ownership mitigates acquirers’ incentives and opportunities to finance acquisitions with inflated stocks. This view stems from the observation that, although the average stock‐for‐stock acquirer's merger announcement return is negative when the target is listed, it is positive when the target is unlisted. Accordingly, extant studies often suggest that announcements of stock‐for‐stock acquisitions of unlisted targets convey favorable private information about the acquirers. However, an analysis of stock‐for‐stock acquirers’ stock performance, abnormal accruals, net operating assets, and insider trading suggests the opposite. Acquirers of unlisted targets are generally more overvalued than acquirers of listed targets.