Volume 29 Special Issue 2004

Market Returns to Acquirers of Substantial Assets

Raymond da Silva Rosa Thuy Nguyen Terry Walter

Abstract

Does poor post-acquisition performance characterise firms that make non-M&A acquisitions? We investigate the wealth effects of substantial asset acquisitions (i.e. acquisitions that cost over $10 million) on acquiring firms' shareholders. We find significant abnormal positive market reaction to asset acquisition announcements and, contrary to findings for firms undertaking M&As, the acquiring firms perform exceptionally well post-acquisition. Our findings are robust to the research method weaknesses common to many studies of long-term performance and we control for free-cash-flow as well. Our results contradict the hubris hypothesis of acquisitions and lend weight to the argument that the auction-style process that characterizes corporate takeover bids contributes to overpayment.

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Keywords

ASSET ACQUISITIONS; MARKET EFFICIENCY; LONG-TERM PERFORMANCE.

Contact Details Raymond da Silva Rosa UWA Business School, The University of Western Australia 35 Stirling Highway, Crawley, WA 6009. E-mail: ray.dasilvarosa@uwa.edu.au Thuy Nguyen Macquarie Bank 20 Bond St, Sydney, NSW, 2000. E-mail: Thuy.Nguyen@macquarie.com Terry Walter School of Banking and Finance, The University of New South Wales, Sydney, 2052 and Capital Markets Cooperative Research Centre Limited, Level 2, 9 Castlereagh Street, Sydney NSW 2000. E-mail: t.walter@unsw.edu.au

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