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Long‐Run Stock Performance and Its Determinants for Asset Buyers
Author(s) -
Chen ShengSyan,
Liu YongChin,
Chen IJu
Publication year - 2014
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12065
Subject(s) - stock (firearms) , earnings , business , cash flow , monetary economics , earnings management , financial economics , corporate governance , economics , finance , mechanical engineering , engineering
Abstract This paper examines the long‐term stock performance of asset purchasers and the determinants of cross‐sectional differences in performance. Our findings show that buyers’ stocks, on average, underperform following purchases. Buy‐and‐hold abnormal returns of buyers acquiring related assets are significantly higher than those acquiring unrelated assets, consistent with the focus hypothesis. Asset buyers with superior prior stock performance experience poorer long‐run performance than buyers with inferior prior stock performance, consistent with the prior performance hypothesis. Asset buyers that manage earnings upward, experience poorer long‐term abnormal stock performance than acquirers with downward earnings management, consistent with the earnings management hypothesis. The long‐term return evidence is to some degree consistent with the governance hypothesis but we find little support for the free cash flow hypothesis.