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Stock mergers and acquirers’ subsequent stock price crash risk

Stock mergers and acquirers’ subsequent stock price crash risk
Stock mergers and acquirers’ subsequent stock price crash risk
We examine the changes in acquirers’ stock price crash risk following mergers and acquisitions (M&As). We employ the three measures of crash risk most commonly used in the literature: the negative conditional skewness of acquirer-specific stock returns, a down-to-up volatility measure, and the excess of extreme negative stock returns over extreme positive returns. We find that stock acquirers experience significantly higher stock price crash risk as compared to cash acquirers. The change in risk is positively correlated with the percent of stock used as a payment method. The findings are confined to acquirers with overvalued stock, lower profitability and more financial constraints, as well as to acquisitions of public targets. We confirm that stock market crises do not drive our findings. Furthermore, our results are robust to endogeneity concerns, controlling for non-acquirers and post-merger acquirer changes.
mergers and acquisitions, crash risk, stock price crash risk
0924-865X
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b
Susnjara, Jurica
c2d0b40b-0df0-4a7b-a9a6-0872a631d5c9
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b
Susnjara, Jurica
c2d0b40b-0df0-4a7b-a9a6-0872a631d5c9

Jory, Surendranath, Ngo, Thanh and Susnjara, Jurica (2019) Stock mergers and acquirers’ subsequent stock price crash risk. Review of Quantitative Finance and Accounting. (doi:10.1007/s11156-019-00792-w).

Record type: Article

Abstract

We examine the changes in acquirers’ stock price crash risk following mergers and acquisitions (M&As). We employ the three measures of crash risk most commonly used in the literature: the negative conditional skewness of acquirer-specific stock returns, a down-to-up volatility measure, and the excess of extreme negative stock returns over extreme positive returns. We find that stock acquirers experience significantly higher stock price crash risk as compared to cash acquirers. The change in risk is positively correlated with the percent of stock used as a payment method. The findings are confined to acquirers with overvalued stock, lower profitability and more financial constraints, as well as to acquisitions of public targets. We confirm that stock market crises do not drive our findings. Furthermore, our results are robust to endogeneity concerns, controlling for non-acquirers and post-merger acquirer changes.

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Accepted/In Press date: 31 January 2019
e-pub ahead of print date: 31 January 2019
Keywords: mergers and acquisitions, crash risk, stock price crash risk

Identifiers

Local EPrints ID: 428201
URI: https://eprints.soton.ac.uk/id/eprint/428201
ISSN: 0924-865X
PURE UUID: 0e4800cb-c573-41b8-af19-466c5e7e5ba9

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Date deposited: 15 Feb 2019 17:30
Last modified: 13 Mar 2019 17:35

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Contributors

Author: Thanh Ngo
Author: Jurica Susnjara

University divisions

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