On the role of acquisition premium in acquisition research

Tomi M. M. Laamanen

201 citations0/0 files storedStrategic Management Journal

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Reporting and Valuation Research

Abstract

Abstract Several studies argue that paying high acquisition premia is value destroying for acquirer shareholders. There are studies that have even used the size of premium as a measure of low‐quality decision making. This paper departs from the earlier research and shows that acquisition premia may be justified when target firms' resources are difficult for the market to value. An analysis of a sample of 458 acquisitions demonstrates that although higher premia are paid for R&D‐related assets, the premia do not cause negative abnormal returns. Abnormal returns are more strongly affected by the overall target price levels independent of premia. Copyright © 2007 John Wiley & Sons, Ltd.

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References

1991Firm Resources and Sustained Competitive Advantage 2004Firm resources and sustained competitive advantage 1984Corporate financing and investment decisions when firms have information that investors do not have 1993The cornerstones of competitive advantage: A resource‐based view 1989Asset Stock Accumulation and Sustainability of Competitive Advantage 1986The Hubris Hypothesis of Corporate Takeovers 2003Stock market driven acquisitions 1996The capitalization, amortization, and value-relevance of R&D

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2014The effects of corporate reputation perceptions of the general public on shareholder value 2012A contextual theory of organizational learning from failures and successes: A study of acquisition completion in the global newspaper industry, 1981–2008 2015The relevance of political affinity for the initial acquisition premium in cross‐border acquisitions 2012The vicarious wisdom of crowds: toward a behavioral perspective on investor reactions to acquisition announcements 2015Performance deviations and acquisition premiums: The impact of CEO celebrity on managerial risk‐taking

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