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Do Overvaluation-Driven Stock Acquisitions Really Benefit Acquirer Shareholders?

Published online by Cambridge University Press:  02 August 2013

Mehmet E. Akbulut
Mehmet E. Akbulut*
Affiliation:
makbulut@fullerton.edu, Mihaylo School of Business, California State University Fullerton, PO Box 34080, Fullerton, CA 92834
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Abstract

I study the effects of overvalued equity on acquisition activity and shareholder wealth, using managers’ insider trades to measure overvaluation. I find that overvalued equity drives managers to make stock acquisitions, and such acquisitions destroy value for acquirer shareholders. Overvalued stock acquirers earn negative and lower returns in the short run and substantially underperform similarly overvalued nonacquirer firms in the long run. My results do not support the idea that managers can benefit shareholders by converting overvalued equity into real assets through stock acquisitions.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 4 , August 2013 , pp. 1025 - 1055
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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