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Market Misvaluation, Managerial Horizon, and Acquisitions
Author(s) -
Gao Huasheng
Publication year - 2010
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/j.1755-053x.2010.01094.x
Subject(s) - valuation (finance) , horizon , mergers and acquisitions , equity (law) , business , time horizon , stock (firearms) , empirical evidence , stock market , construct (python library) , financial economics , econometrics , economics , monetary economics , actuarial science , finance , computer science , mechanical engineering , paleontology , philosophy , physics , epistemology , horse , astronomy , political science , law , biology , programming language , engineering
This paper analyzes the impact of managerial horizon on mergers and acquisitions activity. The main predication is that acquiring firms managed by short‐horizon executives have higher abnormal returns at acquisition announcements, less likelihood of using equity to pay for the transactions, and inferior postmerger stock performance in the long run. I construct two proxies for managerial horizon based on the CEO's career concern and compensation scheme, and provide empirical evidence supporting the above prediction. Moreover, I also demonstrate that long‐horizon managers are more likely to initiate acquisitions in response to high stock market valuation.