Business, Management and Accounting
8 years ago

Stock acquirers overvalued before mergers, leading to long-term negative returns.

RePEc: Research Papers in Economics
Are Stock Acquirers Overvalued? Evidence from Short Selling Activity
Itzhak Ben‐David, Michael S. Drake, Darren T. Roulstone

Paper Summary

Stock acquirers are often overvalued before mergers, leading to high short selling activity. Short interest predicts negative returns after merger announcements. Stock acquirers have more short interest than cash acquirers. Overvalued firms tend to choose stock acquisitions, and short selling doesn't fully correct their overvaluation.

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