Abstract
Using 947 acquisitions during 1970-1989, this paper finds a relationship between the post-acquisition returns and the mode of acquisition and form of payment. During a five-year period following the acquisition, on average, firms that complete stock mergers earn significantly negative excess returns of -25.0 percent whereas firms that complete cash tender offers earn significantly positive excess returns of 61.7 percent. Over the combined pre- and post-acquisition period, target shareholders do not earn significantly positive excess returns in stock mergers. In the top quartile of target to acquirer size ratio, target shareholders earn negative excess returns in stock mergers.
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