Divergence of Opinion and Post-Acquisition Performance


  • They would like to thank Peter Pope, Andrew Stark and Martin Walker (editors), John Doukas, Vladimir Zdorovtsov, Huainan Zhao, seminar participants at Durham Business School, conference participants at the Multinational Finance Society 2005 meeting and the JBFA Capital Markets' Conference in Thessaloniki and especially one anonymous referee for comments on previous drafts of this paper.

* Address for correspondence: George Alexandridis, Durham Business School, Durham University, Mill Hill Lane, Durham DH1 3LB, UK.
e-mail: george.alexandridis@durham.ac.uk


Abstract:  We examine the relation between divergence of opinion about the value of the acquiring firm in the pre-acquisition announcement period and post-acquisition stock returns. We find that acquirers subject to high opinion dispersion earn lower future returns than acquirers subject to low dispersion. It appears that, on average, only acquirers in the high divergence of opinion subset experience significant negative post-event abnormal returns. In the spirit of Miller (1977), such evidence implies that high pre-event investor disagreement leads to systematic overpricing of acquirers that manifests itself through long-run underperformance of their stock. The documented misvaluation persists irrespective of the opinion divergence proxy and performance evaluation method used and after controlling for several common deal and acquirer characteristics.