The underperformance of equity-financed bidders

Purpose – The purpose of this paper is to investigate bidder and target returns in the time surrounding merger and acquisition (M&A) announcements.

Design/methodology/approach – The paper employs parametric and non-parametric tests and regressions on holding period and abnormal returns to bidder and targets using indicators for equity and mixed financing, hostility, and Fama-French SMB and HML factors.

Findings – The paper provides evidence that the cumulative average abnormal returns to shareholders of bidder companies in equity financed mergers following an M&A announcement are significantly negative.

Practical implications – The paper highlights the fiduciary duty of bidder company management and M&A advisory professionals to bidder company shareholders.

Originality/value – The paper updates the limited research on hostility and bidder returns in Australian M&A literature by re-examining the share price performance over various windows and controlling for the Fama-French factors.