In this paper we analyze how stock market liquidity affects the abnormal return to target firms in
mergers and tender offers. We predict that target firms with poorer stock market liquidity receive
larger announcement day abnormal returns based on the following considerations. First, target
firms with poorer stock market liquidity receive greater liquidity improvements after a merger or
tender offer. Second, deals that involve less liquid targets are less anticipated and/or more likely
to be completed. Third, less liquid stocks have more diverse reservation prices across
shareholders and thus require a higher takeover return. Consistent with these expectations, we
show that abnormal returns to target firms’ shareholders are significantly and positively related to
the difference in liquidity (measured by the bid-ask spread) between acquirers and targets as well
as the magnitude of target firms’ liquidity improvement.
JEL classification: G14; G34
Key words: Mergers; Tender offers; Bid-ask spread; Liquidity premium; Abnormal returns
학회소식
[2012년 제 4차] Liquidity and Returns to Target Shareholders in the
작성자 : 관리자
조회수 : 753
게시일 :
2012-12-12
