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Long-Run Stock Performance and Its Determinants for Asset Buyers


  • Sheng-Syan Chen,

  • Yong-Chin Liu,

    Corresponding author
    • Address for correspondence: Yong-Chin Liu, Department of Finance, College of Management, Asia University, No. 500, Lioufeng Rd., Wufeng, Taichung 41354, Taiwan. e-mail:

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  • I-Ju Chen

  • The authors are respectively, from National Taiwan University, Asia University and Yuan Ze University all in Taiwan. The authors are grateful for valuable comments from an anonymous referee and Norman C. Strong (Associate Editor). Yong-Chin Liu acknowledges funding from the National Science Council in Taiwan (NSC100–2410-H-468–016). (Paper received July 2011; revised version accepted December 2013).


This paper examines the long-term stock performance of asset purchasers and the determinants of cross-sectional differences in performance. Our findings show that buyers’ stocks, on average, underperform following purchases. Buy-and-hold abnormal returns of buyers acquiring related assets are significantly higher than those acquiring unrelated assets, consistent with the focus hypothesis. Asset buyers with superior prior stock performance experience poorer long-run performance than buyers with inferior prior stock performance, consistent with the prior performance hypothesis. Asset buyers that manage earnings upward, experience poorer long-term abnormal stock performance than acquirers with downward earnings management, consistent with the earnings management hypothesis. The long-term return evidence is to some degree consistent with the governance hypothesis but we find little support for the free cash flow hypothesis.