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The effect of takeovers on the fundamental value of acquirers

Guest, Paul and Bild, Magnus and Runsten, Mikael (2010) The effect of takeovers on the fundamental value of acquirers. Accounting and Business Research 40 (4), pp. 333-352. ISSN 0001-4788.

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This paper develops a new methodology to examine the financial impact of acquisitions, designed to address whether takeovers yield a positive net present value for the acquiring company. Specifically, we employ the residual income valuation method to compare the fundamental value of the acquiring company before acquisition with the fundamental value after acquisition.We apply this methodology to 303 UK acquisitions completed during 1985-1996, and compare the results with the effects of takeover on profitability and short- and long-run share returns. We find that the impact of acquisition on fundamental value is slightly negative but statistically insignificant. This result differs from the effect of takeover on profitability, which is significantly positive, and the effect of takeover on share returns, which is significantly negative.

Item Type: Article
Keyword(s) / Subject(s): acquisitions, fundamental value, residual income, profitability, share returns
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Management
Depositing User: Administrator
Date Deposited: 28 Feb 2011 14:35
Last Modified: 17 Apr 2013 12:20

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