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Shall One Invest in Cancelled Targets after the Termination of Mergers and Acquisitions?

Author

Listed:
  • Gene C. Lai

    (Department of Finance, Insurance, and Real Estate, Washington State University, U.S.A.)

  • Keith M. Moore

    (The Peter J. Tobin College of Business, St. John's University, U.S.A.)

  • Henry R. Oppenheimer

    (College of Business Administration, University of Rhode Island, U.S.A.)

Abstract

Many portfolio managers on Wall Street believe that investing in cancelled targets after the termination of mergers and acquisitions is a profitable strategy because arbitrageurs usually unwind their position after the cancellation announcement. While the anecdotal evidence shows that arbitrageurs do hold large positions in target companies when the deals are cancelled, we do not find that investing in cancelled targets is a profitable strategy. Our results also suggest that, in general, there is no relation between trading volume and abnormal returns. The overall evidence indicates that the target stocks are efficiently priced, and arbitrageurs unwinding their positions does not provide an opportunity for abnormal returns.

Suggested Citation

  • Gene C. Lai & Keith M. Moore & Henry R. Oppenheimer, 2006. "Shall One Invest in Cancelled Targets after the Termination of Mergers and Acquisitions?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 5(2), pages 93-110, August.
    • Handle: RePEc:ijb:journl:v:5:y:2006:i:2:p:93-110
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    merger arbitrage; risk arbitrage; cancelled transactions; terminated takeovers;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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