Keywords

misvaluation, mergers and acquisitions, short interest

Abstract

We use short interest as an investor-based measure of over/undervaluation that distinguishes between the misvaluation and Q-theories of mergers. Using this measure, we find that misvaluation is a strong determinant of merger decision making. Firms in the top quintile of short interest are 54% more likely to engage in stock acquisitions and 22% less likely to engage in cash acquisitions. Stock (but not cash) acquirers have higher short interest than their targets. Overall, our results suggest that the previously documented underperformance of stock acquirers and the overperformance of cash acquirers can be explained by misvaluation, as captured by short interest.

Original Publication Citation

Ben-David, Itzhak and Drake, Michael S. and Roulstone, Darren T., Acquirer Valuation and Acquisition Decisions: Identifying Mispricing Using Short Interest (April 24, 2013). Journal of Financial and Quantitative Analysis (JFQA), Fisher College of Business Working Paper No. 2010-03-011, Charles A. Dice Center Working Paper No. 2010-11, Available at SSRN: https://ssrn.com/abstract=1572686 or http://dx.doi.org/10.2139/ssrn.1572686

Document Type

Peer-Reviewed Article

Publication Date

2013

Publisher

Journal of Financial and Quantitative Analysis

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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