Performance of Stock Market Driven Acquisitions

Do managers time the stock market in making§takeovers? This dissertation examines the theory of§stock market driven acquisitions in explaining§performance of mergers and acquisitions. Examining§stock returns and financial performance, the§predictions of this theory are tested on a sample of§Canadian firms (1994-2000). §Findings show that Canadian acquirers using stock§deals suffer significant negative 36-month§performance measured by a market model, a market§adjusted model and an accounting return model. These§findings support the theory s prediction of negative§returns. Weak support is found for the prediction of§positive returns for cash acquirers. There is support§for the theory s prediction of better returns for§cash acquirers than stock acquirers. Target companies§experience post-merger gains that last in the short§term as predicted. Over-valuation of acquirers using§stock payment does suffer negative long term§performance. Poorer performance is not found in§overvaluation of cash acquirers. Overall, this study§concludes from a range of evidence in Canada that§indeed managers could be motivated by overvalued§stock prices in making takeovers.