GLAMOUR, VALUE AND THE POSTACQUISITION PERFORMANCE OF ACQUIRING FIRMS

This paper uses a methodology robust to recent criticisms of standard long-horizon event study tests to show that bidders in mergers underpe rform while bidders in tender offers overperform in the three years af ter the acquisition. However, the long-term underperformance of acquir ing firms in mergers is predominantly caused by the poor post-acquisit ion performance of low book-to-market ''glamour'' firms. We interpret this finding as evidence that both the market and the management overe xtrapolate the bidder's past performance (as reflected in the bidder's book-to-market ratio) when they assess the desirability of an acquisi tion. (C) 1998 Elsevier Science S.A. All rights reserved.