Speaker’s Name: Kevin H. Kim (Assistant Prof./The University of Memphis)
We investigate and explain an apparent contradiction in the prior literature on the performance of small acquirers. Small acquirers enjoy announcement period returns that are significantly higher than returns for larger acquirers, but small acquirers also significantly underperform after the acquisition is consummated. We provide evidence consistent with an initial optimistic overreaction, followed by a correction as updated information is revealed. Specifically, low analyst coverage suggests that small acquirers operate in a less rich informational environment, and significantly higher announcement trading volume for small acquirers suggests an overreaction by investors. However, post-acquisition return on assets suggests that small acquirers perform worse than larger acquirers if they offer stock consideration or diversify outside of their primary industry. Small acquirers in these subgroups appear to explain the negative post-acquisitions prior work has observed for small acquirers.