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The underperformance of equity-financed bidders

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Purpose ‐ The purpose of this paper is to investigate bidder and target returns in the time surrounding merger and acquisition (M&A) announcements. Design/methodology/approach ‐ The paper employs parametric and non-parametric tests and regressions on holding period and abnormal returns to bidder and targets using indicators for equity and mixed financing, hostility, and Fama-French SMB and HML factors. Findings ‐ The paper provides evidence that the cumulative average abnormal returns to shareholders of bidder companies in equity financed mergers following an M&A announcement are significantly negative. Practical implications ‐ The paper highlights the fiduciary duty of bidder company management and M&A advisory professionals to bidder company shareholders. Originality/value ‐ The paper updates the limited research on hostility and bidder returns in Australian M&A literature by re-examining the share price performance over various windows and controlling for the Fama-French factors.

Keywords: Acquisitions and mergers; Buyers; Equity capital; Financial performance; Shareholders

Document Type: Research Article

DOI: http://dx.doi.org/10.1108/17439131011015760

Publication date: January 1, 2010

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