Do Long-Term Shareholders Benefit From Corporate Acquisitions?




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    • The University of Iowa, Iowa City, Iowa. This article has benefited from the comments of seminar participants at the University of Illinois, the University of Iowa, and the 1996 Western Finance Association meeting. We thank Utpal Bhattacharya, James Cotter, Eugene Fama, Joetta Forsyth, Thomas George, Todd Houge, Sarah Peck, Raghavendra Rau, and Jay Ritter for useful comments, René Stulz (the editor), and an anonymous referee for many comments that improved this article. Yao-Min Chiang and Todd Houge provided valuable assistance with data collection.


Using 947 acquisitions during 1970–1989, this article finds a relationship between the postacquisition returns and the mode of acquisition and form of payment. During a five-year period following the acquisition, on average, firms that complete stock mergers earn significantly negative excess returns of −25.0 percent whereas firms that complete cash tender offers earn significantly positive excess returns of 61.7 percent. Over the combined preacquisition and postacquisition period, target shareholders who hold on to the acquirer stock received as payment in stock mergers do not earn significantly positive excess returns. In the top quartile of target to acquirer size ratio, they earn negative excess returns.