Bidder Returns on Acquisition Announcements: The Case of Instantly Completed Deals

Abstract

Previous research on acquisitions has found announcement returns for acquirers to be affected by a number of factors; most prominent being the size of the acquirer, the method of payment and type of ownership of the target. Acquisitions by small acquirers, cash deals and deals for private targets yield better returns than large acquirers, equity deals, and public targets respectively. However, these studies are based on announcements returns where there is still uncertainty as to whether the transaction will be completed. Therefore those returns may have been attenuated by market perception of the likelihood of completion of the deals. To remove the effects of uncertainty surrounding the completion, we use the subset of deals that are announced and completed on the same day. We find that the small firm effect persists, but that the effects of method of payment and type of ownership of the target disappear. These results are consistent with the conjecture that the market does not necessarily perceive cash deals and deals for private targets to be better than their equity and public target counterparts, but rather that they are more likely to be completed.