We present a model of mergers and acquisitions based on stock market misvaluations of the combining firms. The key ingredients of the model are the relative valuations of the merging firms, the horizons of their respective managers, and the market's perception of the synergies from the...

Since 1968, the ratio of stock market capitalization to GDP has varied by a factor of 5. In 1972, the ratio stood at above unity, but by 1974, it had fallen to 0.45 where it stayed for the next decade. It then began a steady climb, and today it stands above 2. We argue that the IT revolution was...

This paper examines the effect of the benefits of corporate control to managers on the relationship between managerial ownership and the stock returns of acquiring firms in corporate control transactions. At low levels of managerial ownership, agency costs of equity (such as perquisite...

The paper questions the common view that share price increases of firms involved in hostile takeovers measure efficiency gains from acquisitions. Even if such gains exist, most of the increase in the combined value of the target and the acquirer is likely to come from stakeholder wealth losses,...

Stock returns around acquisition announcements are widely viewed as being reflective of the net present value created by these transactions. As such, announcement returns should correlate with acquisition outcomes. Using a new measure of realized transaction-level acquisition failure, as well as...

We document that net equity issuance is considerably more sensitive to aggregate stock returns and Q's than to firm-level stock returns and Q's. Very similar patterns also emerge when we look at merger activity. In light of earlier work (Campbell 1991, Vuolteenaho 2002) which finds that...

Behavioral finance models imply that an increase in shares outstanding leads to a lower stock price for firms with greater diversity in opinion among investors. Information asymmetry models imply that share issues by firms with greater information asymmetries are accompanied by larger share...