Does Takeover Increase Stockholder Value?

Yes. We modify the calendar-time portfolio regressions approach to measure the abnormal returns of a takeover portfolio composed exclusively of successful bidders and targets from 1963 to 1995. This technique balances the announcement-period effects against the alleged post-announcement drift that is commonly thought to accompany takeovers. By using a GARCH(1,1) error specification, we overcome limitations that would otherwise confound this approach. Studying 3,249 successful takeover events, we find that value weighted portfolios earn a highly significant 72 basis points a month in abnormal returns. We extend the analysis to examine decade-specific results, diversifying mergers, and the choice of method of payment on subsequent performance. JEL Classification Codes: G00, G30, G34 ? We would like to thank seminar participants at the 2000 European Finance Association Meetings, the University of Chicago Corporate Finance Brown Bag, as well as Gregor Andrade, Steve Kaplan, S.P. Kothari, Mark Mitchell, Raghuram Rajan, Erik Stafford, Per Strömberg, Andy Wong, and Luigi Zingales for helpful comments. Any errors are our own. ∗ Corresponding author. Does Takeover Increase Shareholder Value?