Revisiting acquirer returns : evidence from unanticipated deals

This paper examines the implications of market anticipation of impending merger and acquisition (M&A) deals on the assessment of acquirer wealth effects through event study methods. We find evidence suggesting that prior studies have understated the gains to acquirers. The documented negative or near-zero abnormal returns to acquirers appears to be confined to sub-samples of highly-anticipated deals. By contrast, unanticipated acquirers gain significantly from M&As, achieving average cumulative abnormal returns of 5.4% to 7.5% in the seven days around the bid announcement. Empirically, we show that market anticipation partly explains (1) the documented low returns to acquirers, (2) the positive abnormal return spillover to close rivals of acquirers, and (3) the declining returns to serial acquirers across successive deals. Overall, our study provides evidence against several stylised facts and sheds light on the puzzle that M&A activity persists despite recurrent research findings that they do not create value for acquirers.