Abstract

A long-standing theory in mergers and acquisitions is that overvalued firms can create value by using stock payment as an acquisition option. This study challenges the notion that firm overvaluation is a driver of stock acquisitions. These acquisitions do not lead to major synergy gains. Additionally, we examine the reason why firms opt for stock acquisitions by examining acquisition completion time, synergies, premiums and returns. We find that stock overvaluation is not a significant motive for stock acquisitions as the benefit from overvalued acquisitions is offset by negative synergy, returns and high premiums.