Acquisitions driven by stock overvaluation: Are they good deals? |
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| Authors: | Fangjian Fu Leming Lin Micah S Officer |
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| Institution: | 1. Singapore Management University, Lee Kong Chian School of Business, 50 Stamford Road, Singapore 178899, Singapore;2. University of Florida, Warrington College of Business Administration, Gainesville, FL 32611-7150, USA;3. Loyola Marymount University, College of Business Administration, Hilton Center for Business, 1 LMU Drive, Los Angeles, CA 90045-2659, USA |
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| Abstract: | Theory and recent evidence suggest that overvalued firms can create value for shareholders if they exploit their overvaluation by using their stock as currency to purchase less overvalued firms. We challenge this idea and show that, in practice, overvalued acquirers significantly overpay for their targets. These acquisitions do not, in turn, lead to synergy gains. Moreover, these acquisitions seem to be concentrated among acquirers with the largest governance problems. CEO compensation, not shareholder value creation, appears to be the main motive behind acquisitions by overvalued acquirers. |
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| Keywords: | G34 G14 |
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