TY - JOUR
T1 - Does acquirer cash level predict post-acquisition returns?
AU - Oler, Derek K.
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/12
Y1 - 2008/12
N2 - This paper investigates whether an acquirer's pre-announcement cash level can predict post-acquisition returns. Harford (1999, Journal of Finance, 54, 1969-1997) shows that some cash-rich acquirers have lower announcement period returns than other acquirers, suggesting the market partially anticipates poor future performance. This paper shows that the acquirer's cash level is also strongly and negatively predictive of post-acquisition returns, indicating that the announcement response is incomplete. Post-acquisition return on net operating assets (RNOA) is significantly decreasing in acquirer cash, suggesting that the market responds to subsequent poor operating performance as it is reported. Overall, these results are consistent with the market's inattention to a less prominent accounting signal (acquirer cash) but attentiveness to a more prominent accounting signal (RNOA), as proposed by Hirshleifer and Teoh (2003, Journal of Accounting Economics, 36, 337-386).
AB - This paper investigates whether an acquirer's pre-announcement cash level can predict post-acquisition returns. Harford (1999, Journal of Finance, 54, 1969-1997) shows that some cash-rich acquirers have lower announcement period returns than other acquirers, suggesting the market partially anticipates poor future performance. This paper shows that the acquirer's cash level is also strongly and negatively predictive of post-acquisition returns, indicating that the announcement response is incomplete. Post-acquisition return on net operating assets (RNOA) is significantly decreasing in acquirer cash, suggesting that the market responds to subsequent poor operating performance as it is reported. Overall, these results are consistent with the market's inattention to a less prominent accounting signal (acquirer cash) but attentiveness to a more prominent accounting signal (RNOA), as proposed by Hirshleifer and Teoh (2003, Journal of Accounting Economics, 36, 337-386).
KW - Acquisitions
KW - Cash accumulation
KW - Market efficiency
KW - Post-acquisition returns
UR - http://www.scopus.com/inward/record.url?scp=50149109859&partnerID=8YFLogxK
U2 - 10.1007/s11142-007-9052-1
DO - 10.1007/s11142-007-9052-1
M3 - Article
AN - SCOPUS:50149109859
VL - 13
SP - 479
EP - 511
JO - Review of Accounting Studies
JF - Review of Accounting Studies
SN - 1380-6653
IS - 4
ER -