Acquisitions Driven by Stock Overvaluation: Are They Good Deals?
By Fangjian Fu, Leming Lin, Micah S. Officer. 2013
278 citations recorded by the source corpus.
Theory and recent evidence suggest that overvalued firms can create value for shareholders if they exploit their overvaluation by using their stock as currency to purchase less overvalued firms. We challenge this idea and show that, in practice, overvalued acquirers significantly overpay for their targets. These acquisitions do not, in turn, lead to synergy gains. Moreover, these acquisitions seem to be concentrated among acquirers with the largest governance problems. CEO compensation, not shareholder value creation, appears to be the main motive behind acquisitions by overvalued acquirers.
Subfields: Accounting, Finance, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/1689097c7cabae2adefbbaac0254e6f695e2b790
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Citations in the corpus
- Industry contagion in loan spreads (2012, unknown): “Fu, Lin, and Officer (2010) argue that examination of post-acquisition operating performance is potentially a more direct metric for synergistic gains or losses and real value-added in acquisitions.”
- Common Auditors in M&A Transactions (2016, unknown): “…for M&A quality: (1) post-acquisition change in ROA, ∆ROA, (Healy et al., 1992; Chen et al., 2007; Wang and Xie, 2009; Lin et al., 2011; Fu et al., 2013; Goodman et al., 2014), and (2) the probability of a post-acquisition goodwill impairment, Prob_GW_Impair (Doellman and Ryngaert,…”
- Directors’ and Officers’ Liability Insurance and Acquisition Outcomes (2011, unknown): “Fu, Lin, and Officer (2010) argue that examination of post-acquisition operating performance is potentially a more direct metric for synergistic gains or losses and real value-added in acquisitions.”
- Corporate Social Responsibility and Market Efficiency: Evidence from ESG and Misvaluation Measures (2020, methodology): “Here, the true value is computed as a linear function of accounting measures benchmarked against industries and allowed to vary over time (Fu et al., 2013).”