Prior research documents that acquirers of unlisted targets achieve higher announcement returns than do acquirers of public targets. This return differential holds whether the sample of unlisted targets includes both private firms and subsidiaries together, private firms only, or subsidiaries only. While, a few papers have investigated the causes of the differential, the differential does not appear to have yet been explained. For example, Faccio, McConnell, and Stolin (2006), referring to the prior literature, write (p.197) “Although various hypotheses have been proffered to explain this phenomenon, none have been fully successful (Chang (1998), Fuller, Netter, and Stegemoller (2002), and Hansen and Lott (1996)).” Faccio, McConnell, and Stolin are also unable to explain the differential, concluding that (p. 197) “[t]he fundamental factors that give rise to this listing effect…remain elusive.”

This acquirer announcement period return differential is important to a number of parties. For example, managers of acquiring firms should be aware of the return differential when selecting acquisition targets. This information likely improves the bargaining ability of both acquirer and target managers as well. Moreover, knowledge of the return differential should benefit the monitoring function of both acquiring and target stockholders. Finally, increased awareness of acquirer returns should inform public policy on takeovers and their regulation.

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Returns to Acquirers of Public and Subsidiary Targets