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

Timothy R. Burch, Vikram Nanda, Sabatino Silveri

Research output: Contribution to journalArticle

2 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)211-241
Number of pages31
JournalJournal of Financial Research
Volume35
Issue number2
DOIs
StatePublished - Jun 1 2012

ASJC Scopus subject areas

  • Accounting
  • Finance

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