Alternative Investing

Do Bad Bidders Become Good Targets?

Topics - Alternative Investing

${ numberSection } ${ text }
Do Bad Bidders Become Good Targets?

The stock market’s reaction to a corporate merger can be a useful signal about whether the transaction will succeed as well as whether the acquiring company may itself become a takeover target.

The authors review the stock price movements of 1,158 firms from 1980 through July 1988 to gauge market reactions to transactions from 1982 to 1986, looking for the size of the average stock price move after acquisition announcements.

The paper asserts there was a significant difference in market reactions to acquisitions that subsequently were sold off compared with those that were not subsequently divested.

Post-announcement stock-price movements also differed for acquiring companies that later became takeover targets themselves compared with those of acquiring companies that did not later become takeover targets.

The market reaction was even more pronounced for companies that both failed to integrate their acquisitions and became takeover targets themselves.

These results suggest that one source of value in many corporate takeovers, especially hostile takeovers, is recoupment of target equity value that had been lost because of the targets’ poor acquisition strategies prior to the reception of their bids.

Roger F. Murray Prize 1990

Published In

Journal of Political Economy

AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


Diversification does not eliminate the risk of experiencing investment loss.


Certain publications may have been written prior to the author being an employee of AQR.

This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.


AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.