Do Stock Mergers Create Value for Acquires?

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This dissertation studies whether stock mergers creates value for acquirers. The first chapter of this dissertation conducts a comprehensive review of the existing merger literature relevant to this topic. It includes existing merger theories, empirical studies on whether mergers are value destroying or value creating, and methodological issues on empirical merger studies. The second chapter of this dissertation conducts an innovative empirical study to examine the impact of stock mergers to acquires. This study finds support for the hypothesis that overvalued firms create value for long-term shareholders by using their equity as currency. Any approach centered on abnormal returns is complicated by the fact that the most overvalued firms have the greatest incentive to engage in stock acquisitions. I solve this endogeneity problem by creating a sample of mergers that fail for exogenous reasons. I find that unsuccessful stock bidders significantly underperform successful ones. Failure to consummate is costlier for richly priced firms, and the unrealized acquirer-target combination would have earned higher returns. None of these results hold for cash bids.

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  • 09/17/2018
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