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Divergence of Opinion and Post‐Acquisition Performance

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  • George Alexandridis
  • Antonios Antoniou
  • Dimitris Petmezas

Abstract

We examine the relation between divergence of opinion about the value of the acquiring firm in the pre‐acquisition announcement period and post‐acquisition stock returns. We find that acquirers subject to high opinion dispersion earn lower future returns than acquirers subject to low dispersion. It appears that, on average, only acquirers in the high divergence of opinion subset experience significant negative post‐event abnormal returns. In the spirit of Miller (1977), such evidence implies that high pre‐event investor disagreement leads to systematic overpricing of acquirers that manifests itself through long‐run underperformance of their stock. The documented misvaluation persists irrespective of the opinion divergence proxy and performance evaluation method used and after controlling for several common deal and acquirer characteristics.

Suggested Citation

  • George Alexandridis & Antonios Antoniou & Dimitris Petmezas, 2007. "Divergence of Opinion and Post‐Acquisition Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 439-460, April.
    • Handle: RePEc:bla:jbfnac:v:34:y:2007:i:3-4:p:439-460
    DOI: 10.1111/j.1468-5957.2007.02043.x
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    1. Lin, Hsuan-Chu & Chou, Ting-Kai & Cheng, Jia-Chi, 2011. "Does market misvaluation drive post-acquisition underperformance in stock deals?," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 690-706, October.
    2. Wolfgang Breuer & Bushra Ghufran & Astrid Juliane Salzmann, 2020. "Investors' time preferences and takeover performance," Post-Print hal-02508909, HAL.
    3. Michou, Maria & Mouselli, Sulaiman & Stark, Andrew, 2014. "On the differences in measuring SMB and HML in the UK – Do they matter?," The British Accounting Review, Elsevier, vol. 46(3), pages 281-294.
    4. Gerritsen, Dirk F. & Weitzel, Utz, 2017. "Security analyst target prices as reference point and takeover completion," Journal of Behavioral and Experimental Finance, Elsevier, vol. 15(C), pages 1-14.

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