Premium
How Much Is Too Much: Are Merger Premiums Too High?
Author(s) -
Antoniou Antonios,
Arbour Philippe,
Zhao Huainan
Publication year - 2008
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2007.00404.x
Subject(s) - shareholder , stock (firearms) , mergers and acquisitions , business , monetary economics , stock price , economics , finance , corporate governance , mechanical engineering , paleontology , series (stratigraphy) , engineering , biology
Is it too much to pay target firm shareholders a 50% premium on top of market price? Or is it too much to pay a 100% premium when pursuing mergers and acquisitions? How much is too much? In this paper, we examine how the extent of merger premiums paid impacts both the long‐run and announcement period stock returns of acquiring firms. We find no evidence that acquirers paying high premiums underperform those paying relatively low premiums in three years following mergers, and the result is robust after controlling for a variety of firm and deal characteristics. Short term cumulative abnormal returns are moreover positively correlated to the level of the premium paid by acquirers. Our evidence therefore suggests that high merger premiums paid are unlikely to be responsible for acquirers' long‐run post merger underperformance.