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The Post-Acquisition Returns of Stock Deals: Evidence of the Pervasiveness of the Asset Growth Effect

Published online by Cambridge University Press:  12 August 2015

Sandra Mortal  and
Michael J. Schill
Sandra Mortal
Affiliation:
scmortal@memphis.edu, University of Memphis, Fogelman College of Business and Economics, Memphis, TN 38152
Michael J. Schill*
Affiliation:
schill@virginia.edu, University of Virginia, Darden Graduate School of Business Administration, Charlottesville, VA 22906.
*
*Corresponding author: schill@virginia.edu
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Abstract

A growing literature finds that firm asset growth rates are negatively correlated with subsequent stock returns. We show that the poor post-deal returns that have been documented for stock acquisitions are more precisely explained by the return effects associated with systematically larger asset growth rates for stock deals. We find a similar result for other cross-sectional and time-series acquisition effects, including poor returns for glamour deals, weakly monitored deals, and deals done during high-valuation periods. We suggest that the distinguishing characteristic associated with poor performing acquisitions is simply their tendency to grow assets.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 50 , Issue 3 , June 2015 , pp. 477 - 507
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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