| Dissertation |
Thesis (Ph.D.) --NUI, 2011 at Department of Accounting , Finance and Information Systems, UCC. |
| Summary |
Theory suggests that acquisitions increase shareholders' wealth due to synergistic gains. However, there is considerable empirical evidence in the literature that acquirers underperform in the long-term following takeover completion. Some potential explanations of acquirers' under-performance imply that acquirers are mispriced at the time of acquisition announcement. Specifically, researchers provide evidence that acquirers' long-run under-performance is greater for glamour acquirers and acquirers that finance the takeover with equity. The behavioural timing hypothesis suggests that acquirers' managers proactively exploit their company's over-valuation by issuing equity to finance the takeover. This study finds that, in a sample of US acquirers from 1986 to 2005, the three-year post-takeover buy-and-hold abnormal returns of glamour acquirers and equity-issuing acquirers are significantly inferior to that of value acquirers and acquirers that finance the takeover with cash, respectively. Further analysis reveals that while the earnings expectations of both glamour acquirers and equity-issuing acquirers are relatively overoptimistic, the takeover financing method is the dominant factor in explaining the posttakeover underperformance. This study exploits the evidence in the accounting literature that mispricing is associated with over-optimistic earnings expectations. The significant association between the takeover financing method and post-takeover underperformance is entirely explained by the analysts' earnings forecasts errors and revisions. Essentially, this research provides evidence that the mispricing of equityissuing acquirers, particularly those with glamour stocks, is explained by the overoptimism of their earnings expectations. The study also finds that the significant association between takeover financing method and post-takeover under-performance is specific to hot merger markets. In cold merger markets, overpayment of takeover consideration explains acquirers' under-performance. This suggests that acquirers are aware of market over-optimism in hot periods take advantage of it by issuing equity and paying relatively lower premiums. Overall, this study develops the existing models explaining acquisition puzzle by examining over-optimism and extends the literature pertaining to acquirers' mispricing specifically as implied by the behavioural timing hypothesis. |
| Subject |
Consolidation and merger of corporations -- Accounting.
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Accounting.
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Finance.
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| Collection |
Theses Ph.D.
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Theses Accounting, Finance and Information Systems Department
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| Description |
301 p. ; 30 cm. |
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