Wealth effect of firms engaging in acquisitions programmes

Abstract

This paper examines the short-term and long-term performance of acquiring firms engaging in acquisitions programmes. In particular, the short-term performance around the announcement is studied in terms of the growth opportunities of acquiring firms (as proxied by Tobin's q ratio). The long-term performance after the announcement is studied with respect to growth opportunities, active/inactive acquirers and leverage level. Overall results show that the acquirers earn significant abnormal returns both in the short run and long run. However, long-term analyses reveal that the over-performance is not uniform across the full sample. High-q and high-levered firms earn significant abnormal returns while low-q and low-levered firms do not.