We are grateful to Simi Kedia (the referee) for many insightful comments that significantly improved the article. We thank Otgo Erhemjamts, Amy Ho, Jayant Kale, Omesh Kini, Thomas Moeller, Bob Mooradian, Kartik Raman, Ebru Reis, Ajay Subramanian, and seminar participants at Bentley University, Binghamton University, University of Navarra, the 2006 European Financial Management Association meetings, and the 2007 Financial Management Association European conference for several comments and suggestions. The usual disclaimer applies.
INDUSTRY PROSPECTS AND ACQUIRER RETURNS IN DIVERSIFYING TAKEOVERS
Article first published online: 19 FEB 2009
© 2009 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 32, Issue 1, pages 23–51, Spring 2009
How to Cite
Shahrur, H. and Venkateswaran, A. (2009), INDUSTRY PROSPECTS AND ACQUIRER RETURNS IN DIVERSIFYING TAKEOVERS. Journal of Financial Research, 32: 23–51. doi: 10.1111/j.1475-6803.2008.01241.x
- Issue published online: 19 FEB 2009
- Article first published online: 19 FEB 2009
We use a sample of 816 diversifying takeovers from 1978 to 2003 to examine whether takeover announcements release negative information about the future prospects of the acquirer's main industry. We find that rivals that are most similar to the acquirer (homogeneous rivals) experience significant negative cumulative abnormal returns (CAR) around takeover announcements. Takeovers that result in negative wealth effects to acquirers are associated with negative abnormal revisions in analysts' forecasts of homogeneous rivals' earnings per share. We also find a decline in the posttakeover operating performance of rival firms. The decline is especially pronounced for homogeneous rivals and for takeovers with negative wealth effects to acquirers. Our findings imply that CAR-based estimates of acquirer wealth gains from takeovers that do not account for industrywide information releases are significantly biased downward.