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Fire sale acquisitions: Myth vs. reality

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  • Ang, James
  • Mauck, Nathan

Abstract

We provide empirical evidence on the conjecture that in economic crises, firms could be forced to sell at deep discounts, or fire sale prices. Using the conventional stock price near the announcement date, we find instead distressed firms in crisis periods receive a 30% higher offer premium than distressed firms in normal periods; they also receive a 34% higher premium than non-distressed firms in crisis periods. Acquirers also do not gain, at announcement and over the long-term. Acquirers, however, may perceive they realize fire sale discounts if the reference is the targets' highest price in the previous 52Â weeks.

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  • Ang, James & Mauck, Nathan, 2011. "Fire sale acquisitions: Myth vs. reality," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 532-543, March.
    • Handle: RePEc:eee:jbfina:v:35:y:2011:i:3:p:532-543
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    3. Neelam Rani & Aman Asija, 2017. "Has Financial Crisis Affected the Announcement Gains of Indian Cross-border Acquisitions?," IIM Kozhikode Society & Management Review, , vol. 6(1), pages 55-66, January.
    4. Bruyland, Evy & Lasfer, Meziane & De Maeseneire, Wouter & Song, Wei, 2019. "The performance of acquisitions by high default risk bidders," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 37-58.
    5. Nachiket Thakkar & Kiran Ambreen Ayub, 2022. "External Debt Default and Foreign Direct Investments," Bulletin of Applied Economics, Risk Market Journals, vol. 9(2), pages 223-237.
    6. Josipa Visic, 2012. "Evidence of Fire-Sale M&A in European Transition Countries," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 10(4 (Winter), pages 325-340.
    7. Moshirian, Fariborz, 2011. "The global financial crisis and the evolution of markets, institutions and regulation," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 502-511, March.
    8. Liu, Jia & Lister, Roger & Pang, Dong, 2013. "Corporate evolution following initial public offerings in China: A life-course approach," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 1-20.
    9. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    10. De, Soumendra & Jindra, Jan, 2012. "Why newly listed firms become acquisition targets," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2616-2631.
    11. Finlay, William & Marshall, Andrew & McColgan, Patrick, 2018. "Financing, fire sales, and the stockholder wealth effects of asset divestiture announcements," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 323-348.
    12. Servaes, Henri & Meier, Jean-Marie A., 2014. "Distressed Acquisitions," CEPR Discussion Papers 10093, C.E.P.R. Discussion Papers.
    13. Knill, April M. & Lee, Bong Soo & Mauck, Nathan, 2012. "Sovereign wealth fund investment and the return-to-risk performance of target firms," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 315-340.
    14. Erin Oldford & Isaac Otchere, 2021. "Institutional cross-ownership, heterogeneous incentives, and negative premium mergers," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 321-351, July.
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    18. Simonyan, Karen, 2014. "What determines takeover premia: An empirical analysis," Journal of Economics and Business, Elsevier, vol. 75(C), pages 93-125.

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