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Limited Information and the Sustainability of Unlisted-Target Acquirers' Returns

Authors

  • Manapol Ekkayokkaya,

    1. The first author is from Chulalongkorn University. The second and third authors are from the University of Leeds. They thank Paul Malatesta, Russ Wermers, Theo Vermaelen, Thomas Moeller, Annette Poulsen, Can Inci, conference participants at the 2007 FMA European Conference, 2007 EFMA Annual Meetings, 2007 Chulalongkorn Accounting and Finance Symposium, workshop participants at University of Ljubljana, and University of Bologna, the editor and an anonymous referee for helpful comments and suggestions on earlier versions of this paper. Excellent research assistance from Jaturachet Niltawat is also acknowledged. Any remaining errors are the authors' own.
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  • Phil Holmes,

    1. The first author is from Chulalongkorn University. The second and third authors are from the University of Leeds. They thank Paul Malatesta, Russ Wermers, Theo Vermaelen, Thomas Moeller, Annette Poulsen, Can Inci, conference participants at the 2007 FMA European Conference, 2007 EFMA Annual Meetings, 2007 Chulalongkorn Accounting and Finance Symposium, workshop participants at University of Ljubljana, and University of Bologna, the editor and an anonymous referee for helpful comments and suggestions on earlier versions of this paper. Excellent research assistance from Jaturachet Niltawat is also acknowledged. Any remaining errors are the authors' own.
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  • Krishna Paudyal

    Corresponding author
    1. The first author is from Chulalongkorn University. The second and third authors are from the University of Leeds. They thank Paul Malatesta, Russ Wermers, Theo Vermaelen, Thomas Moeller, Annette Poulsen, Can Inci, conference participants at the 2007 FMA European Conference, 2007 EFMA Annual Meetings, 2007 Chulalongkorn Accounting and Finance Symposium, workshop participants at University of Ljubljana, and University of Bologna, the editor and an anonymous referee for helpful comments and suggestions on earlier versions of this paper. Excellent research assistance from Jaturachet Niltawat is also acknowledged. Any remaining errors are the authors' own.
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* Address for correspondence: Krishna Paudyal, Leeds University Business School, University of Leeds, Leeds, LS2 9JT, UK.
e-mail: K.N.Paudyal@Leeds.ac.uk

Abstract

Abstract:  Relaxed disclosure requirements of unlisted firms, as compared to publicly listed companies, lead to limited quality and quantity of information at bid announcements, causing difficulty in valuing gains from mergers. This raises the question: are the frequently reported superior announcement-period gains to unlisted-target acquirers sustainable in the long run? Our results for the UK show that unlisted-target acquirers gain on announcement, but suffer a substantial loss in the long run. This reversal in fortune of unlisted-target acquirers is in sharp contrast to the performance of listed-target acquirers in the UK. Therefore, short-run gains for unlisted-target acquirers may result from investors’ excessive optimism when faced with limited and biased information.

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