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Merger momentum and market valuations: the UK evidence

Author

Listed:
  • Antonios Antoniou
  • Jie Guo
  • Dimitris Petmezas

Abstract

This study examines the effect of merger momentum on acquirer's returns both in the short and long-run. The focus is on high valuation markets and the source of momentum is investigated employing three different hypotheses: the neoclassical hypothesis, the hubris hypothesis and the investor sentiment theory. Evidence is provided that supports the investor sentiment (optimism) hypothesis since it is demonstrated that investors earn significant gains in the short run but returns are reversed in the long-run as initial expectations may not be fully met when combined firms' accomplishments become known over time. The results are robust after controlling for several acquirer and deal characteristics.

Suggested Citation

  • Antonios Antoniou & Jie Guo & Dimitris Petmezas, 2008. "Merger momentum and market valuations: the UK evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 18(17), pages 1411-1423.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:17:p:1411-1423
    DOI: 10.1080/09603100701720468
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    Cited by:

    1. G. Kling & U. Weitzel, 2009. "Endogenous mergers: Bidder momentum and market reaction," Working Papers 09-22, Utrecht School of Economics.
    2. Zhu, PengCheng, 2011. "Persistent performance and interaction effects in sequential cross-border mergers and acquisitions," Journal of Multinational Financial Management, Elsevier, vol. 21(1), pages 18-39, February.
    3. Kai-Shi Chuang, 2018. "Glamour versus value, market timing and firm performance: evidence from mergers and acquisitions," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 967-1003, November.
    4. Mathur MAYANK, 2020. "Macroeconomic View of Mergers and Acquisitions in the Technology Industry," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 147-155.
    5. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    6. Edward Jones & Hao Li & Oluwagbenga Adamolekun, 2022. "Excess Cash Holdings, Stock Returns, and Investment Organicity: Evidence from UK Investment Announcements," Abacus, Accounting Foundation, University of Sydney, vol. 58(4), pages 603-647, December.

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