Motives in the Acquisitions of NASDAQ Targets during the Aftermath of the 1987 Crash

After the crash of 1987, the Nasdaq composite index stayed below the precrash level for nearly two years. Takeover activity surged in this after‐crash period. We compare the motives in the acquisitions of Nasdaq targets during the after‐crash period with those in the ten‐year period before the crash...

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Bibliographic Details
Published in:The Financial review (Buffalo, N.Y.) N.Y.), 2003-11, Vol.38 (4), p.553-569
Main Authors: Gondhalekar, Vijay, Bhagwat, Yatin
Format: Article
Language:English
Subjects:
agency
crash
G34
Hostile takeovers
hubris
Securities markets
Stock market crashes
Stock prices
Studies
synergy
takeovers
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Summary:After the crash of 1987, the Nasdaq composite index stayed below the precrash level for nearly two years. Takeover activity surged in this after‐crash period. We compare the motives in the acquisitions of Nasdaq targets during the after‐crash period with those in the ten‐year period before the crash. We find that the announcement period return to acquirers and the proportion of acquirers with positive gains declines in the after‐crash period. For both the periods, agency is the motive for takeovers that have negative total gains (acquirer + target), but synergy and hubris are comotives for takeovers that have positive total gains. The proportion of takeovers in which the managers of acquirers act against the interest of the shareholders increases after the crash.
ISSN:0732-8516
1540-6288
DOI:10.1111/1540-6288.00060