Paul H. Malatesta, Measuring Abnormal Performance: The Event Parameter Approach Using Joint Generalized Least Squares, The Journal of Financial and Quantitative Analysis, Vol. 21, No. 1 (Mar., 1986), pp. 27-38

This paper studies the net effects of the long-run sequence of events leading to merger, and of merger per se, on shareholder wealth. The appropriate measure of the wealth effect is shown to be the abnormal dollar return cumulated over time. Using this measure, the long-run wealth effect of the event sequence culminating in merger is significantly negative for acquiring firms. For acquired firms, the effect is negative, but not significant. The immediate impact of merger per se is positive and highly significant for acquired firms but larger in absolute value, and negative for acquiring firms. The evidence also reveals that measured abnormal rates of return to acquiring firms are sensitive to a slight variation in model specification and dependent on firm size, with smaller firms earning significantly negative post-merger returns.

Paul H. Malatesta, Rex Thompson, Government Regulation and Structural Change in the Corporate Acquisitions Market: The Impact of the Williams Act, The Journal of Financial and Quantitative Analysis, Vol. 28, No. 3 (Sep., 1993), pp. 363-379

This paper presents a model of stock price reactions to partially anticipated events. The model formalizes the intuition that stock price reactions reflect both the economic importance of events and the extent to which events are surprises. Unbiased estimates of the economic importance of partially anticipated events must combine stock price reactions to events with stock price movements in periods when no event occurs. The model is used to estimate the value of acquisition attempts made by frequently acquiring firms. For a sample of thirty active acquirers, the evidence indicates that acquisition attempts were profitable investment projects.

This paper tests hypotheses about the wealth effects of poison pill securities and hypotheses about the characteristics of firms that adopt them. Our estimates indicate that poison pill defenses reduce stockholder wealth by a statistically significant amount. We also find that firms that adopt poison pill defenses are significantly less profitable than the average firm in their industries during the year prior to adoption. Moreover, the managers of these firms hold statistically significantly smaller fractions of their own firms' stock than the average fraction held by managers of other firms in the same industries.

State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity by Kathryn L. DeWenter and Paul H. Malatesta. Published in volume 91, issue 1, pages 320-334 of American Economic Review, March 2001

We compare initial offer prices in privatizations to initial prices in public offerings of private companies. The evidence indicates that government officials in the United Kingdom underprice IPOs significantly more than their private company counterparts. In Canada and Malaysia, however, the opposite is true. There does not appear to be a general tendency for privatizations to be underpriced to a greater degree than private company IPOs. We provide additional evidence on the determinants of privatization initial returns. Our findings indicate that initial returns are significantly higher in relatively primitive capital markets and for privatized companies in regulated industries.

We analyze the impact of sovereign wealth fund (SWF) investments on firm values and provide evidence consistent with the tradeoff between the monitoring and lobbying benefits versus tunneling and expropriation costs of SWFs as blockholders. The data show significant positive (negative) returns to announcements of SWF investments (divestments). The returns are non-monotonic, first rising (falling) and then falling (rising) with the share sought (sold) for investments (divestments). Moreover, we find that SWFs are often active investors. Slightly more than half of the target firms experience one or more events indicative of SWF monitoring activity or influence.

Abnormal accounting accruals are unusually high around stock offers, especially high for firms whose offers subsequently attract lawsuits. Accruals tend to reverse after stock offers and are negatively related to post-offer stock returns. Reversals are more pronounced and stock returns are lower for sued firms than for those that are not sued. The incidence of lawsuits involving stock offers and settlement amounts are significantly positively related to abnormal accruals around the offer and significantly negatively related to post-offer stock returns. Our results support the view that some firms opportunistically manipulate earnings upward before stock issues rendering themselves vulnerable to litigation.

Proponents of state antitakeover legislation argue that previous empirical tests by financial economists of the wealth effects of Pennsylvania's 1990 antitakeover law are biased. We show that the proponents are correct. In particular, firm size, event-time clustering, and non-synchronous trading effects account for the wealth decreases reported in earlier studies. We also show, however, that both proponents and critics of the Pennsylvania legislation have ignored the earliest press release about it. The wealth effect associated with this announcement is negative, large, and statistically significant. These results therefore are consistent with the hypothesis that the Pennsylvania law decreased company values and with the hypothesis that the initial market reaction is an unbiased estimate of the law's effect on firm values.