The Post‐Merger Performance of Acquiring Firms: A Re‐examination of an Anomaly

TLDR

The literature on post‑merger performance of acquiring firms is divided. The study re‑examines post‑merger performance using a nearly exhaustive sample of NYSE acquirer‑target mergers and investigates whether market adjustment explains the observed negative returns. The authors analyze this sample, examining market adjustment dynamics to the merger event. Acquiring firms’ stockholders lose about 10% over five years post‑merger, a result robust to specifications and not explained by firm size, beta estimation, or slow market adjustment.

Abstract

ABSTRACT The existing literature on the post‐merger performance of acquiring firms is divided. We re‐examine this issue, using a nearly exhaustive sample of mergers between NYSE acquirers and NYSE/AMEX targets. We find that stockholders of acquiring firms suffer a statistically significant loss of about 10% over the five‐year post‐merger period, a result robust to various specifications. Our evidence suggests that neither the firm size effect nor beta estimation problems are the cause of the negative post‐merger returns. We examine whether this result is caused by a slow adjustment of the market to the merger event. Our results do not seem consistent with this hypothesis.