Long-run stock performance and its determinants for asset buyers
Journal
Journal of Business Finance and Accounting
Journal Volume
41
Journal Issue
5-6
Pages
685-716
Date Issued
2014-01-01
Author(s)
Abstract
This paper examines the long-term stock performance of asset purchasers and the determinants of cross-sectional differences in performance. Our findings show that buyers' stocks, on average, underperform following purchases. Buy-and-hold abnormal returns of buyers acquiring related assets are significantly higher than those acquiring unrelated assets, consistent with the focus hypothesis. Asset buyers with superior prior stock performance experience poorer long-run performance than buyers with inferior prior stock performance, consistent with the prior performance hypothesis. Asset buyers that manage earnings upward, experience poorer long-term abnormal stock performance than acquirers with downward earnings management, consistent with the earnings management hypothesis. The long-term return evidence is to some degree consistent with the governance hypothesis but we find little support for the free cash flow hypothesis. © 2014 John Wiley & Sons Ltd.
Subjects
Anti-takeover provisions | Corporate governance | Earnings management | Fit hypothesis | Free cash flow
Publisher
WILEY
Type
journal article