Do institutions prefer high-value acquirers? An analysis of trading in stock-financed acquisitions

Abstract

If owners of target shares in a stock-for-stock merger perceive the acquirer as overvalued, they should sell their holdings more aggressively to profit before such overvaluation dissipates. We study institutional owners of targets and find that slightly more than half liquidate their shares in stock mergers, consistent with high institutional-share turnover rates found in the prior literature. However, share retention is higher when valuation measures suggest greater acquirer overvaluation, regardless of whether institutional owners generally prefer growth or value stock. Institutions that prefer large-cap, growth stock are most enthusiastic about bids from large, high-valuation acquirers, and substantially increase their stakes in such deals. © 2012 The Southern Finance Association and the Southwestern Finance Association.

Publication Title

Journal of Financial Research

Link to Full Text

Share

COinS