Investor Recognition and Post-Acquisition Performance of Acquirers


The literature has documented a negative relation between investor recognition and expected returns. This negative relation is consistent with the prediction in Merton (1987). This paper investigates whether the changes in investor recognition of acquirers around the time of the acquisitions can explain the post-acquisition under-performance of acquirer stocks. Using a large sample of U.S. acquisitions from 1980 to 2010, this paper finds that investor recognition, proxied by the number of institutional investors and the number of common shareholders, increases significantly during acquisitions. Once the increases in investor recognition are controlled for, the “puzzling” long-run under-performances of acquirers disappears.