An Examination of the Long Run Performance of UK Acquiring Firms

Abstract

This study examines a comprehensive data set of large domestic takeovers by UK listed companies between 1984 and 1992. The contribution of this paper is to show, by using a series of models of abnormal returns, together with the Ibbotson (1975) ‘Returns Across Time Series’ model and a simple cross‐sectional model of returns across all listed UK companies, that the average abnormal return for up to two years post‐acquisition is unambiguously and significantly negative. In particular, acquirers financing a takeover through equity, and single (as opposed to regular) acquirers exhibit significant negative performance. There is also some evidence to suggest that diversifying acquirers perform worse than non‐diversifying acquirers and that recommended bids are associated with poorer subsequent under‐performance by acquirers than are hostile bids.