The 2000 implementation of float-capitalization index weights in the Dow Jones STOXX SM indices changed the demand for large European stocks. In this paper, we test for imperfect-substitution and price-pressure effects due to the change in the demand for stocks. Our results show that we cannot reject complete reversal after eight weeks of abnormal trading volume for companies with both decreased or increased index weights. This result is consistent with the existence of downward sloping demand curves for stocks. Contrary to the fundamental assumption of perfectly elastic demand curves in asset pricing theories, our findings suggest that a price pressure effect is not a plausible explanation. JEL classification codes: G11; G14

Are there skill differences in mergers and acquisitions? To investigate this question, we focus on persistence in the performance of corporate acquirers. We find persistence only when successive deals occur under the same CEO and conclude that skill differences in acquisitions reside with the CEO, not with the firm as a whole. These differences are economically meaningful. An acquirer that was successful in its last deal and kept its CEO earns 1.02% more on its next deal than does a previously-unsuccessful firm that kept its CEO. This percentage difference is equivalent to a $175million difference in value creation.

Prior research documents that acquirers of public targets earn zero or negative announcement period returns, while acquirers of private and subsidiary targets earn positive returns. This finding is clearly important to managers and stockholders of acquirers and targets. We employ a large sample of public and subsidiary targets to test four previously unexamined theories of the return differential: synergy, target financial liquidity, target valuation uncertainty, and target bid resistance. We find that none of the empirical measures related to these four theories explains the return differential. This is surprising, since the theories have generally found empirical support in other financial areas.

Academic literature, practitioners, courts, and regulators routinely assert that both private and subsidiary targets sell at discounts relative to public targets. However, the empirical evidence to support this conclusion is thin. Our work alters the methodology from prior research to avoid biases due to both one-sided sample truncation and Jensen’s inequality. Following these changes, we find no evidence that unlisted targets sell at discounts. Our results hold under a number of different approaches and after controlling for known determinants of acquisition pricing.