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That Stockholders Of Highly Liquid Targets Have The Highest Abnormal Returns, ...

That stockholders of highly liquid targets have the highest abnormal returns, because the chance of courting more than one potential bidder is much higher, and stockholders of bankrupt-predicted targets the lowest, which are often harder to value and have fewer suitors.
Evidence that stockholders of target firms enjoy positive abnormal returns is unambiguous (see Halpern 1983; Jensen and Ruback 1983; Schipper and Thompson, 1983).
A sample of 35 retailing acquisitions indicates the mean premium paid by acquiring firms was 69.7% with the range from 9% to 154%. Yet when we look at ROE vs cost of capital as the means by which shareholders create wealth, (RoE > ke creates wealth) there is no evidence that
Note that firms that acquired bankrupt or highly liquid firms did not demonstrate abnormal returns that were statistically different from zero. The rest, those in between, exhibited negative abnormal returns.
(2) Abstract
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(3) Introduction
What are the research issues? What is the significance and relevance of the research?
General M&A activity: Hayes & Abernathy, 1980 suggested that the great bulk of merger activity appears to have been absolutely wasted in terms of generating economic benefit for the stockholders Economists Scherer (1980) and Mueller (1980) have also raised considerable doubts about the performance of corporations after mergers and acquisitions. There are no obvious advantages in inter-state or cross border mergers. Bank industry experts are sceptical of the possible gains from bank consolidation. The economic value added or increased shareholder value from bank M&A is not obvious. These gains have been questioned by industry observers and academic writers in 1980s and early 1990s (Berger, Demsetz and Strahn, 1999) (Milbourn, Boot and Thakor, 1999). Earlier empirical research suggest M&A produces zero or negative gains in terms of cost efficiency. The only ones to gain occasionally were some times the owners of the target bank, especially if it has shown poor performance because of X-inefficiencies (Houston & Ryngaert, 1994; Pilloff, 1996).


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