Deal or No Deal - How Overvaluation and Governance Problems Drive Stock-Financed Acquisitions

Sammanfattning: Theory suggests that overvalued firms can create value for their shareholders by exploiting their overvaluation to purchase less overvalued firms through stock-financed acquisitions. Recent evidence from the US indicates that these companies often fail to do so by significantly overpaying for their targets and destroying shareholder value in the long run. By adopting a similar study design to a European setting, we show that the same outcomes are attained for European overvalued stock acquirers. In a cross-country setting, we find that the most value-destroying acquisitions are concentrated in countries with low levels of shareholder protection. Governance problems and principal-agent conflicts, not shareholder value creation, appear to be the main motive behind stock acquisitions by overvalued acquirers in these countries.