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Stock Returns in Mergers and Acquisitions
Author(s) -
HACKBARTH DIRK,
MORELLEC ERWAN
Publication year - 2008
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01356.x
Subject(s) - mergers and acquisitions , stock (firearms) , empirical evidence , business , financial economics , econometrics , enterprise value , economics , sample (material) , monetary economics , accounting , finance , philosophy , epistemology , engineering , mechanical engineering , chemistry , chromatography
This paper develops a real options framework to analyze the behavior of stock returns in mergers and acquisitions. In this framework, the timing and terms of takeovers are endogenous and result from value‐maximizing decisions. The implications of the model for abnormal announcement returns are consistent with the available empirical evidence. In addition, the model generates new predictions regarding the dynamics of firm‐level betas for the period surrounding control transactions. Using a sample of 1,086 takeovers of publicly traded U.S. firms between 1985 and 2002, we present new evidence on the dynamics of firm‐level betas, which is strongly supportive of the model's predictions.