Working Paper Series, Department of Finance, Copenhagen Business School
Jan Jakobsen and Torben Voetmann
Post-Acquisition Performance in the Short and Long Run Evidence from the Copenhagen Stock Exchange 1993-1997
Abstract: This paper investigates the short-run price adjustment
around the acquisition announce-ment
and the long-run upward bias of
the cross-sectional average buy-and-hold returns.
We apply the
geometric Brownian motion model to decompose the cross-sectional ave r-age
long-run returns into mean components and volatility components. The
is necessary in order to interpret security performance
correctly using the measure of
wealth relatives. This procedure is
useful for any studies of long-run security perform-ance.
surprising finding is that the long-horizon abnormal return after three
years is not significantly different from zero. This implies that the
acquiring firms do not
under perform significantly compared to the
market. That result stands in contrast to
findings of other studies,
and it may reflect that earlier studies do not adjust for the vola-tility
component. This indicates that the market efficiency hypothesis is
intact in the long
run. It is only in the very short run, i.e. a few
days around the acquisition announcements,
that the market makes a
significant adjustment to uphold the efficiency hypothesis.
Keywords: Event-study methods; wealth relatives; long-run returns; acquisitions; (follow links to similar papers)
JEL-Codes: G14; G34; (follow links to similar papers)
30 pages, October 1, 1999
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