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Are Stock-for-Stock Acquirers of Unlisted Targets Really Less Overvalued?


  • Henock Louis

  • Henock Louis is the KPMG Professor of Accounting at Pennsylvania State University in University Park, PA.

  • This paper benefits from very valuable comments by an anonymous referee, an anonymous associate editor, Raghu Rau (Editor), Qingzhong Ma, Amy Sun, and Oktay Urcan.


Extant studies assume that targets’ private ownership mitigates acquirers’ incentives and opportunities to finance acquisitions with inflated stocks. This view stems from the observation that, although the average stock-for-stock acquirer's merger announcement return is negative when the target is listed, it is positive when the target is unlisted. Accordingly, extant studies often suggest that announcements of stock-for-stock acquisitions of unlisted targets convey favorable private information about the acquirers. However, an analysis of stock-for-stock acquirers’ stock performance, abnormal accruals, net operating assets, and insider trading suggests the opposite. Acquirers of unlisted targets are generally more overvalued than acquirers of listed targets.