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How much is too much: Are merger premiums too high?

Antoniou, A.; Arbour, P.; Zhao, H.

Authors

A. Antoniou

P. Arbour

H. Zhao



Abstract

Is it too much to pay target firm shareholders a 50% premium on top of market price? Or is it too much to pay a 100% premium when pursuing mergers and acquisitions? How much is too much? In this paper, we examine how the extent of merger premiums paid impacts both the long-run and announcement period stock returns of acquiring firms. We find no evidence that acquirers paying high premiums underperform those paying relatively low premiums in three years following mergers, and the result is robust after controlling for a variety of firm and deal characteristics. Short term cumulative abnormal returns are moreover positively correlated to the level of the premium paid by acquirers. Our evidence therefore suggests that high merger premiums paid are unlikely to be responsible for acquirers' long-run post merger underperformance.

Citation

Antoniou, A., Arbour, P., & Zhao, H. (2008). How much is too much: Are merger premiums too high?. European Financial Management, 14(2), 268-287. https://doi.org/10.1111/j.1468-036x.2007.00404.x

Journal Article Type Article
Online Publication Date Oct 17, 2007
Publication Date Mar 1, 2008
Deposit Date Aug 22, 2008
Journal European Financial Management
Print ISSN 1354-7798
Electronic ISSN 1468-036X
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 14
Issue 2
Pages 268-287
DOI https://doi.org/10.1111/j.1468-036x.2007.00404.x
Keywords Mergers and acquisitions, Corporate takeovers, Merger premiums, Abnormal returns, Event study.
Public URL https://durham-repository.worktribe.com/output/1588053