The Value of Corporate Takeovers

Topics - Equities Arbitrage

${ numberSection } ${ text }
The Value of Corporate Takeovers

This article summarizes the results of three studies of the value of corporate takeovers. The first study suggests that takeovers discipline some managers who make value-reducing decisions. Specifically, firms that have made acquisitions that reduced their stock values tend to become takeover targets, while firms that have made acquisitions that increased their values do not. Furthermore, acquisitions associated with abnormal stock price declines tend to be divested, either in subsequent bust-up takeovers or during and following subsequent takeover attempts.

The second study suggests that the quality of acquisition decisions tends to increase with the degree of the acquiring firm’s leverage. The more levered the acquiring firm, the more likely it is that its stock price will increase at the announcement of an acquisition. However, it is difficult to determine whether managers of highly levered firms make better decisions (presumably as a result of the oversight provided by debtholders) or whether managers who make good decisions are simply able to obtain more debt.

The last study argues that Congressional action to limit takeovers contributed to the 10.4% market decline on October 14–16, 1987, which in turn may have triggered the market crash of October 19. The stock market reactions following Congressional action suggest that market participants view takeovers favorably.

Graham and Dodd Scroll Award 1991

Published in

Financial Analysts Journal

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 AQR.com 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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons.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.