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

Abstract

A growing literature finds that firm asset growth rates are negatively correlated 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.

Keywords: Takeovers, glamour deals, market efficiency, asset growth

JEL Classification: G14, G34