Abstract
This paper tests the hypothesis of Jovanovic and Braguinsky (AER, 2004) that acquisition attempts convey negative information about the bidder’s existing projects. We study failed acquisition bids, which enable a before-and-after comparison of the bidder firm as is without the acquisition effects. We find that following failed bids, bidder firms exhibit a significant decline in operating performance. The performance decline is correlated with the stock price change during the bidding period. If the stock price reaction to acquisition announcements partly reflects negative information about bidders’ existing assets, stock-returns-based measures of value creation from acquisitions are underestimated.
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