Hidden addition acquisitions

Sudip Ghosh, Christine Harrington, Christopher J. Marquette, Thomas G.E. Williams

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines the wealth effects of hidden addition acquisitions, i.e., stock financed acquisitions by S&P 500 acquirers of non-S&P 500 targets. These acquisitions result in a re-balancing of the S&P 500, causing the acquirer's weight in the index to increase. The authors classify the acquisitions as either "immediate" or "delayed" based on when the rebalancing occurs. The paper finds that the initial acquirer wealth effect at the announcements of these deals is significantly negative. However, these firms experience a reversal in abnormal returns in the post-announcement period resulting in overall non-significant abnormal returns, with the post-announcement abnormal returns significantly positive in immediate hidden additions. The authors find that both the overall return and post announcement return are positively correlated with the size of the deal. The authors find that the reversal in large deals is statistically and economically significantly positive, indicating possible profitable opportunities for even uninformed traders. The article investigates the effect of size and timing of returns to provide information for profitable trading opportunities in these deals.

Original languageEnglish (US)
Pages (from-to)103-110
Number of pages8
JournalInvestment Management and Financial Innovations
Volume9
Issue number3
StatePublished - Jan 1 2012

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Fingerprint Dive into the research topics of 'Hidden addition acquisitions'. Together they form a unique fingerprint.

Cite this