Anticipation, Acquisitions, and Bidder Returns: Industry Shocks and the Transfer of Information across Rivals

Abstract

We document market anticipation of merger bids and show that less anticipated bids earn significantly higher announcement returns. Subsequent bidders in the industry experience significant and positive abnormal returns around the time of initial industry bid announcements. These results suggest that announcement period returns underestimate the wealth effects of bidding. After accounting for anticipation, bidding activity is, on average, a significant wealth-creating event. Moreover, bidders pursuing public targets increase shareholder wealth and bidders in stock swaps do not lose. These results contradict conventional wisdom. Our results shed light on the correct magnitude of acquisition returns and on the transfer of information throughout an industry around the time of an economic shock. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [e-mail]., Oxford University Press.