Around the announcement date of a merger, acquiring firm shareholders of large publicly traded firms normally earn
A) 30% positive abnormal returns
B) -20% abnormal returns
C) Zero to slightly negative returns
D) 100% positive abnormal returns
E) 10% positive abnormal returns

Question

Quizplus · Accepted Answer

Studies have shown that acquiring firm shareholders of large publicly traded firms usually earn zero to slightly negative returns around the announcement date of a merger. This is because the market may perceive the acquiring firm as overpaying for the target company, leading to a decrease in the acquiring firm's share price.

Around the Announcement Date of a Merger, Acquiring Firm Shareholders