Article - post-print
Theory and recent evidence suggest that overvalued firms can create value for shareholders if they exploit their overvaluation by using their stock as currency to purchase less overvalued firms. We challenge this idea and show that, in practice, overvalued acquirers significantly overpay for their targets. These acquisitions do not, in turn, lead to synergy gains. Moreover, these acquisitions seem to be concentrated among acquirers with the largest governance problems. CEO compensation, not shareholder value creation, appears to be the main motive behind acquisitions by overvalued acquirers.
This is an author-manuscript of an article accepted for publication in Journal of Financial Economics. The version of record Fu, F., Lin, L., & Officer, M. S. (2013). Acquisitions driven by stock overvaluation: Are they good deals?. Journal Of Financial Economics, 10924-39 is available online at: doi:10.1016/j.jfineco.2013.02.013.
Fu, F., Lin, L., & Officer, M. S. (2013). Acquisitions driven by stock overvaluation: Are they good deals?. Journal Of Financial Economics, 10924-39. doi:10.1016/j.jfineco.2013.02.013