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The Pre-Acquisition Performance of Target Firms: A Re-Examination of the Inefficient Management Hypothesis.

  • Economics


It is often stated that bidders acquire poorly-run targets in order to improve firm performance. This inefficient management hypothesis is frequently tested by examining target stock returns in the years prior to an acquisition. While the hypothesis is commonly assumed in the literature to be true, previous papers generally do not show significantly negative returns for targets in the year prior to the acquisition. Our paper re-examines this issue thoroughly with a number of methodological improvements and a large sample of acquisitions over the four years prior to the bid.

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