Glamour, Value and
the Post-Acquisition Performance of Acquiring Firms
P. Raghavendra Rau and Theo Vermaelen
Krannert School of Management, Purdue University
INSEAD, Boulevard de Constance, Fontainebleau, France
This paper uses a methodology robust to recent criticisms
of standard long-horizon event study tests to show that
bidders in mergers underperform while bidders in tender
offers overperform in the three years after the acquisition.
However, the long-term underperformance of acquiring
firms in mergers is predominantly caused by the poor
post-acquisition performance of low book-to-market "glamour" firms.
We interpret this finding as evidence that both the market
and the management overextrapolate the bidder's past
performance (as reflected in the bidder's book-to-market
ratio) when they assess the desirability of an acquisition.
It has been published in the Journal
of Financial Economics. A PDF version of the paper
is available at the Elsevier
site. Access to this site is controlled through
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This paper has been presented at
- Yale School of
Management, Yale University, March 1997;
- London Business
School, February 1997;
- Groupe ESSEC,
Cergy-Pontoise Cedex, France, February 1997;
- University of
North Carolina at Chapel Hill, February 1997;
- School
of Management Studies, Oxford
University, January 1997;
- Erasmus
University,
Rotterdam, January 1997;
- Financial Management
Association, New Orleans, October 1996;
- Finance Seminar, Rice
University, October 1996;
- European
Finance Association, Oslo, August 1996;
- Western
Finance Association, Sunriver, June 1996;
- French Finance Association, Geneva, June 1996;
- European Financial
Management Association, Innsbruck, June 1996;
- Finance & Accounting Seminar, University
of Minnesota at Minneapolis-Saint Paul, June
1996.
and has won the awards
- FMA "Best of the Best" Award , 1996;
- FMA Competitive Award for Business Finance , 1996;
It has been referenced in
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