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The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions by H. Kent Baker, Halil Kiymaz

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CHAPTER 7

The Short-Term and Long-Term Performance of M&As

SHANTANU DUTTA

Assistant Professor of Finance, University of Ontario Institute of Technology

SAMIR SAADI

PhD Candidate, Queen's School of Business

INTRODUCTION

Over the last three decades, much research has investigated the short-term and long-term gains and losses pertaining to takeover (or acquisition) activities. Although such activities involve many parties, empirical studies focus mainly on the gains and losses of the buyer and the seller of the target company. Regarding short-term performance, empirical evidence generally shows that the bidders’ shareholders earn, on average, a zero abnormal return at the acquisition's announcement, but considerable variation exists in these results (Andrade, Mitchell and Stafford, 2001; Bruner, 2002; Fuller, Netter, and Stegemoller, 2002). Target shareholders generally earn significantly positive abnormal return. Long-term performance studies are more controversial because methodological choices can influence the results.

Despite having a rich literature, performance issues involving mergers and acquisitions (M&As) continue to draw substantial interest among academicians and practitioners. The reasons for this continuing interest are twofold. First, a lack of consensus still exists on various issues such as long-term performance, short-term gains to acquiring firms, the impact of governance issues, and the relationship between performance and the characteristics of targets and bidders. ...

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