The Post-Acquisition Returns of Stock Deals: Evidence of the Pervasiveness of the Asset Growth Effect

A growing literature finds that firm asset growth rates are negatively correlated with subsequent stock returns. We show that the poor post-deal returns that have been documented for stock acquisitions are more precisely explained by the return effects associated with systematically larger asset growth rates for stock deals. We find a similar result for other cross-sectional and time-series acquisition effects, including poor returns for glamour deals, weakly monitored deals, and deals done during high-valuation periods. We suggest that the distinguishing characteristic associated with poor performing acquisitions is simply their tendency to grow assets.