Many corporate acquisitions result in losses to the acquiring firms' stockholders. Accordingly, why do firms purchase other corporations? Are they simply paying too much for the acquired corporation? A co-worker asks your opinion. Specifically state the reasons for your argument.© BrainMass Inc. brainmass.com March 4, 2021, 8:05 pm ad1c9bdddf
The performance of the many acquire firm post merger shows long term under performance. This is an unresolved puzzle as the main motive for the merger was to improve the productivity and efficiency of the firm. The literature provides various theoretical explanations for this phenomenon. These are listed below:
§ The first explanation is the "irrational investors approach". In this we assumes that the investors in the security market are irrational so the stock prices are not correctly priced. So securities market arbitrage is imperfect, and the prices of the stock are can be too high or too low. The rational managers in the market identify such mis-priced stocks and make decisions to take advantage of these mis-priced stocks in the market. Thus, the decisions of the managers may lead to maximize the short-run value of the firm, the long run performance of the stock will ...
Long-term financial management decisions are discussed when acquiring corporation.