Why acquiring firms experience share price underperformance after M&As?
The research will dissect the performance of acquisition firms in the long term, i.e. 3-year significant returns. A finding of strange critical returns, i.e. under or over performance, consequent to the merger of acquisition firms could show that capital markets are wasteful.
In an effective “impeccable” capital market the offer costs ought to mirror all present and future information about the particular company (Brau, Couch & Sutton, 2012). Unusual performance, over the long term in this way proposes the declaration return for the getting firm did not mirror constantly.
The shareholders of acquisition firms encounter a critical loss of 10% over a five-year merger period. Underperformance for acquisition companies in the 21st century could in this manner demonstrate that capital markets are still not productive if such results are not huge then we could contend that the financial markets are turning out to be more efficient after some time.
