Relative equity market valuation conditions and acquirers’ gains

Dimitris Andriosopoulos*, Leonidas G. Barbopoulos

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We examine whether the relative equity market valuation conditions (EMVCs) in the countries of merging firms help acquirers’ managers to time the announcements of both domestic and foreign targets. After controlling for several deal- and merging firm-specific features we find that the number of acquisitions and acquirers’ gains are higher during periods of high-EMVCs at home, irrespective of the domicile of the target. We also find that the higher gains of foreign target acquisitions realized during periods of high-EMVCs at home stem from acquiring targets based in the RoW (=World-G7), rather than the G6 (=G7-UK) group of countries. We argue that this is due to the low correlation of EMVCs between the UK (home) and the RoW group of countries. However, these gains disappear or even reverse during the post-announcement period. Moreover, acquisitions of targets domiciled in the RoW (G6) countries yield higher (lower) gains than acquisitions of domestic targets during periods of high-EMVCs at home. This suggests that the relative EMVCs between the merging firms’ countries allow acquirers’ managers to time the market and acquire targets at a discount, particularly in countries in which acquirers’ stocks are likely to be more overvalued than the targets’ stocks.

Original languageEnglish
Pages (from-to)855-884
Number of pages30
JournalReview of Quantitative Finance and Accounting
Volume49
Issue number3
Early online date2 Nov 2016
DOIs
Publication statusPublished - 1 Oct 2017

Keywords

  • abnormal returns
  • acquirers’ gains
  • post-merger performance
  • relative equity market valuation conditions

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