Dissertation/Thesis Abstract

Acquisitions driven by stock overvaluation
by Lin, Leming, M.Sc., Singapore Management University (Singapore), 2009, 44; 1478268
Abstract (Summary)

Overvaluation might drive a firm to use its stock to acquire another firm whose stock is not as overpriced. Though hypothetically desirable, these acquisitions create little, if any, value for acquirer shareholders. Two factors impede value creation for acquirer stockholders from these transactions (despite large differences in relative overvaluation at announcement): acquirers paying large premiums to targets, and investors’ correction of acquirer overvaluation during the bid period. Furthermore, acquirer CEOs obtain a large amount of new stock and option grants after acquisitions and realize a net gain in wealth, further suggesting that equity overvaluation increases agency costs and the resulting actions benefit managers more than shareholders (Jensen (2005)).

Indexing (document details)
Advisor: Fu, Fangjian
School: Singapore Management University (Singapore)
Department: Lee Kong Chian School of Business
School Location: Republic of Singapore
Source: MAI 48/06M, Masters Abstracts International
Subjects: Management
Keywords: Agency costs, CEO compensation, Mergers and acquisitions, Overvaluation
Publication Number: 1478268
ISBN: 978-1-124-08436-7
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