Implications of relative overvaluation in stock-swap acquisitions
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School of Business |
Bachelor's thesis
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Date
2018
Department
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Degree programme
Rahoitus
Language
en
Pages
26
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Abstract
Theory and evidence suggests that overvalued companies can employ their overvaluation by using their stock as a currency to buy less overvalued companies and this way create immediate value for their shareholders. Findings in this thesis demonstrate that in a sample of U.S. mergers between 1996 and 2017, overvaluation does not motivate stock-financed mergers on average. Further, this paper shows that overvaluation motivates mergers on subsamples of this period, as relative overvaluation exists at times when economic conditions are good and valuations high. Finally, I challenge the finding of previous literature, which implies that acquirers in stock-financed deals would not benefit in short-term. My data shows that even though overvalued stock-swap acquirers pay unjustifiable high premiums to their targets, these premiums are not too high to offset all the benefits created in short-term for acquirer shareholders.Description
Thesis advisor
Sprickers, TheresaKeywords
merger, acquisition, method of payment, stock misvaluation, bid-period returns