Stock Returns in Mergers and Acquisitions

By Dirk Hackbarth, Erwan Morellec. 2008

249 citations recorded by the source corpus.

This paper develops a real options framework to analyze the behavior of stock returns in mergers and acquisitions. In this framework, the timing and terms of takeovers are endogenous and result from value-maximizing decisions. The implications of the model for abnormal announcement returns are consistent with the available empirical evidence. In addition, the model generates new predictions regarding the dynamics of firm-level betas for the time period surrounding control transactions. Using a sample of 1090 takeovers of publicly traded US firms between 1985 and 2002, we present new evidence on the dynamics of firm-level betas, which is strongly supportive of the model's predictions.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/53710148888c25700814cb21212408ec24231359

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Alex Edmans
2. Itay Goldstein
3. Wei Jiang
4. Erik Lie
5. Qianqian Huang
6. Ke Yang
7. G. Favara
8. F. Jiang

In Economics and Econometrics

1. Alex Edmans
2. Wei Jiang
3. Erik Lie
4. Qianqian Huang
5. Ke Yang
6. G. Favara
7. Itay Goldstein
8. F. Jiang

In Finance

1. Alex Edmans
2. Itay Goldstein
3. Wei Jiang
4. Erik Lie
5. Qianqian Huang
6. Ke Yang
7. G. Favara
8. F. Jiang

Citations in the corpus

• The role of investment banker directors in M&A (2014, methodology): “We then use the estimated parameters to calculate the cumulative abnormal returns (CARs) over the three-day ( 1, þ1) event window centered on the announcement date (Hackbarth and Morellec, 2008; Bouwman, Fuller, and Nain, 2009; and Deng, Kang, and Low, 2013).”
• Negotiations Under the Threat of an Auction (2010, unknown): “Using an algorithm suggested in Harford (2005), we identify M&A waves at the industry level.”
• Financing and takeovers (2008, unknown): “Lambrecht (2004), Morellec and Zhdanov (2005), Lambrecht and Myers (2007), Margsiri, Mello, and Ruckes (2005), and Hackbarth and Morellec (2008) develop real options models to analyze the timing and terms of takeovers.”
• Real Options Signaling Games with Applications to Corporate Finance (2011, unknown): “d P ( ) d = P ( )w0 (0) ( 1) P ( ) : (19)”
• The Real Effects of Financial Markets: The Impact of Prices on Takeovers (2012, background): “Hackbarth and Morellec (2008) and Cremers, Nair, and John (2009) show that anticipated takeovers affect the correlation of a stock’s return with the market return and hence have an effect on the discount rate.”
• Do Investment Banks Matter for M&A Returns? (2011, unknown): “In addition, Hackbarth and Morellec (2007) show that betas change substantially upon a merger, and so a beta calculated based on historical data is likely to be misleading. We use the CRSP VW index as a benchmark, because R and Vermaelen (1998) document biases when using size and book-to-market adju”
• A Theory of Merger-Driven IPOs (2011, unknown): “The Bidder’s and Target’s Capital Stocks and Valuation We follow Morellec and Zhdanov (2005) and Hackbarth and Morellec (2008) and assume that there exist 2 firms: a potential bidder and a potential target with per-unit-of-capital valuations of their core businesses denoted by X(t) and Y(t),…”
• Strategic default and equity risk across countries (2012, background): “…papers investigating the equity risk implications of product market competition [Aguerrevere (2009)], corporate investment [Carlson, Fisher, and Giammarino (2004)], seasoned equity o¤erings [Carlson, Fisher, and Giammarino (2006)], and mergers and acquisitions [Hackbarth and Morellec (2008)].”