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A Clinical Exploration of Value Creation and Destruction in Acquisitions

How and why is value created or destroyed in mergers and acquisitions? To answer these questions, we present analyses of two acquisitions: Cooper Industries’ acquisition of Cameron Iron Works in 1989 and Premark’s acquisition of Florida Tile in 1990.

Journal Article

Do Bad Bidders Become Good Targets?

The stock market’s reaction to a corporate merger can be a useful signal about whether the transaction will succeed as well as whether the acquiring company may itself become a takeover target. In reviewing the stock price movements of 1,158 firms from 1980 through July 1988 to gauge market reactions to transactions from 1982 to 1986, we found the average stock price move after acquisition announcements was not significantly different from zero. However, there was a significant difference in market reactions to acquisitions that subsequently were sold off compared with those that were not subsequently divested.

Journal Article

Shark Repellents and Managerial Myopia

Critics of hostile corporate takeovers frequently assert that takeover pressure forces managers to sacrifice profitable, but slow-yielding, long-term investments in favor of less-producting short-term investments that offer immediate returns.Evidence supporting takeover-induced short-sightedness, or myopia, is largely anecdotal, but a new economic model predicts that adopting measures to discourage takeovers — so-called shark repellent — will enable corporate managers to increase profitable long-term investments such as research and development (R&D).

Journal Article

Slow-Moving Capital

Unlike textbook arbitrageurs who instantaneously trade when prices deviate from fundamental values, real-world arbitrageurs must overcome various frictions.

Journal Article

The Value of Corporate Takeovers

This article summarizes the results of three studies of the value of corporate takeovers.

Journal Article

The Role of Financial Economics in Securities Fraud Cases

Modern financial economics is becoming increasingly influential in securities fraud law.

Journal Article

The Stock Price Response to Pension Terminations and the Relation of Terminations With Corporate Takeovers

This article offers observation on the stock price response to pension terminations and the relation of terminations with corporate takeovers in the U.S.

Journal Article

Triggering the 1987 Stock Market Crash

On Wednesday, October 14, 1987, the U.S. stock market began the most extreme one-week decline in its history, culminating in the crash on Monday, October 19, when the Dow Jones Industrial Average fell 508 points (22.6%).

Journal Article

Characteristics of Risk and Return in Risk Arbitrage

After the announcement of a merger or acquisition, the target company’s stock typically trades at a discount to the price offered by the acquiring company.

Journal Article

Stock Repurchases and Insider Transactions in the Wake of the 1987 Stock Market Crash

The stock market crash on Monday, October 19, 1987, ignited an unprecedented rush by firms to announce open-market stock-repurchase programs.