Do institutions prefer high value acquirers? An analysis of trading in stock-financed acquisitions

Journal of Financial Research, Vol 35 (Summer 2012), 211-241

Timothy R. Burch, University of Miami
Vikram Nanda, Georgia Institute of Technology
Sabatino Silveri, SUNY-Binghamtom


If owners of target shares in a stock-for-stock merger perceive the acquirer as overvalued, they should sell their holdings more aggressively to profit before such overvaluation dissipates. We study institutional owners of targets and find that slighly more than half liquidate their shares in stock mergers, consistent with high institutional-share turnover rates found in the prior literature. However, share retention is higher when valuation measures suggest greater acquirer overvaluation, regardless of whether institutional owners generally prefer growth or value stock. Institutions that prefer large-cap, growth stock are most enthusiastic about bids from large, high-valuation acquirers, and substantially increase their shares in such deals.

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